There are a few staples in Minister of Finance Trevor Manuel’s annual Budget speech that seem to get an airing each year.
Last year he thanked everyone who offered Budget suggestions, including the person who recommended scrapping income taxes altogether. After giving it due consideration, Manuel decided against it.
Inkatha Freedom Party leader Mangosuthu Buthelezi comes in for an occasional ribbing, usually when there is an increase in taxes on sorghum beer, something that doesn’t go down well with Buthelezi’s rural support base in KwaZulu-Natal.
This year he taunted Bafana Bafana and the Proteas for their recent losing streaks. Both teams should be made to clear rubble ahead of the 2010 World Cup, said Manuel as a prelude to announcing R5-billion in infrastructure spending for the tournament.
Manuel’s stature and confidence has grown with each Budget. Twelve years ago, in 1993, the economy was in its fourth year of recession, during which time employment had fallen 6,5%. Food inflation was 25% in 1992 and consumer inflation 14%. The outgoing National Party government had run up a monstrous 9,5% budget deficit. It fell to Manuel to right the listing ship and set a course for growth and economic redistribution.
Ten years after taking over, the African National Congress government looks back with pride on its achievements: the Budget deficit was reined in to just more than 1% in 2003, a case of overkill that was corrected the following year when the deficit was relaxed to more than 2%; the Reserve Bank eliminated the net forward open position, valued at $25-billion in 1994, and has since built a modest surplus; and public sector debt has fallen from more than 60% in 1994 to less than 50%.
It took the best part of 10 years to establish budgetary credibility, but the rewards were quick in coming: the rand has become a totem of the country’s new-found virility, and large-scale foreign direct investment has placed South Africa on the global investment map. Consumer inflation fell to about 4% in 2005, and domestic growth came close to breaking the 5% mark for the first time in nearly 20 years.
Manuel is an immensely popular politician both within and outside the ANC. The business community loves him for his fiscal conservatism and for laying the foundations for growth. Corporate profitability, particularly for those businesses feeding off the consumer spending binge, has never been better.
Manuel is credited with bringing economic respectability to South Africa, something his predecessors could not do, though many on the left are less than enchanted with Manuel for what they see as soft-pedalling on social spending and wealth redistribution.
Amorphous Manuel
Jac Laubscher, group economist at Sanlam, reflects on Trevor Manuel’s success
If Manuel were to repeat his remark of 1996 regarding the amorphous nature of financial markets today, it will probably result in serious introspection among market participants, rather than the scoffing that followed at that time. Such is the nature of the growth in his stature and credibility since then.
The successes achieved under Manuel’s leadership are many, and they have had a profound impact on South Africa’s financial markets. To mention just a few:
- the reduction in the fiscal deficit, government’s borrowing requirement, and the national debt-to-gross domestic product ratio;
- the reduction in the corporate tax rate and the top marginal personal income tax rate, while at the same time substantially improving the fate of the poor;
- the structural decline in inflation, to which fiscal discipline made a notable contribution;
- the improvement in South Africa’s international credit ratings, which resulted in a decline in the risk premium for government bonds and allowed other domestic borrowers to enter international capital markets on more favourable terms;
- the structural decline in both short-term and long-term interest rates as a result of the above; and
- the gradual relaxation of exchange controls, which has enabled South African markets, institutions, companies and individuals to join the global village.
On the negative side, few things have irked investors more than the introduction of capital gains tax.