The Medium Term Budget Policy Statement (MTBPS) announced by Finance Minister Trevor Manuel in Parliament on Tuesday, was largely welcomed by both business and civil society but there were areas of contention.
The People’s Budget Campaign (PBC), which comprises the Congress of SA Trade Unions, the SA Council of Churches and the SA Non-governmental Organisation Coalition, welcomed increases in social grants, health, and a decline in arms spending. However, it said these were not enough.
”The People’s Budget Coalition welcomes the MTBPS commitment to growing the budget by 4,7% a year in real terms,” Cosatu general secretary Zwelinzima Vavi said.
”Still, we are concerned that the MTBPS does not initiate the shift in social and economic policies that is required to end poverty and bring about sustainable growth.”
It remained unclear how the government reached the 4,7% figure of growing the budget within a year, Vavi said. Inflation targets were not for a country like South Africa.
In his speech, Manuel raised the upper level of the 2004 inflation target by one percentage point, to six percent. The targets for 2002 and 2003 would remain unchanged, Manuel said.
”We don’t think the policy of inflation targeting is an appropriate policy for our country,” Vavi said. Job creation and eradication of poverty were some of the issues that should be targeted.
However, both the Afrikaanse Handelsinstituut (AHI) and the SA Chamber Business (Sacob) welcomed the revised inflation targeting figures.
”This step will instill confidence in the government’s resolve to curtail inflation,” said Christo Luus of the AHI’s economic advisory committee.
”The slight adjustment in the inflation targeting policy should be seen as extremely positive.” Luus said the move hopefully indicated that the SA Reserve Bank’s inflation measure — the consumer price index excluding mortgage rates — would not be tampered with.
He welcomed the prospect of further tax relief measures announced by Manuel. Luus said the increase in social spending over the next three years could bring relief for the poor, particularly in view of rising food prices.
On Manuel’s announcement that foreign exchange controls for investments in Africa would be eased, Luus said it might be time to for a general relaxing of forex controls. Sacob Economist Richard Downing also supported an adjustment of the 2004 inflation target.
On social spending, Downing said the reasons for increased expenditure in this area were understandable in view of the impact of spiralling food prices on the poor.
”It is, however, necessary that such expenditure does not become a permanent feature of the budget in order to address these problems,” he said.
”Economic growth and job creation should, in the long term, be seen as the panacea for addressing unemployment, poverty and social hardship.”
The Federation of Unions of SA (Fedusa) said it was unacceptable that there should be a lengthy delay in the implementation of reduced taxation on retirement funds.
”Current taxation of 25% on interest and rental retirement funds amounts to a decrease in the end benefit to the member of between 20% and 25% over a 30-year period, Fedusa general secretary Chez Milani said.
He said Fedusa believed that steps should be taken to improve co-ordination between fiscal and monetary policy. Fiscal and monetary policy should compliment each other with the aim of boosting economic growth and job creation.
”Manuel decreased personal taxation thereby encouraging spending and economic growth, only to have the Reserve Bank discourage this spending and growth by increasing interest rates repeatedly.”
Aids lobby group, the Treatment Action Campaign (TAC) welcomed the government’s announcement to increase its budget on HIV/Aids. Manuel told Parliament that spending on government’s HIV/Aids response policy would increase by about R3,3-billion over the next three years. This included targeted funding in the national budget and increased conditional grants to the provinces, as well as increased provincial spending funded through the equitable share.
”As much as this is good news, what is more essential is for the government to formulate a clear and thorough HIV/Aids treatment plan so that the money is used appropriately,” TAC chairman Zackie Achmat said. – Sapa