“We are in this together,” Trevor Manuel told Parliament repeatedly on Wednesday, but to many, the song that came to mind might have been My Way, as the Finance Minister rallied investors, bureaucrats, politicians and citizens to the standard of macroeconomic stability and investment for growth.
Chin up
The overt theme of the budget was stability, with Manuel and Treasury officials putting the emphasis on a spending framework that was designed well before the African National Congress’s Polokwane conference to handle both a global economic downturn and domestic anxieties. But threaded through this message was a series of sharp reminders for those in government, and in the ruling party’s ascendant left wing, who might like to take economic policy in a more populist direction, that the Treasury remains in control of the commanding heights.
As Manuel spoke, his deputy, Jabu Moleketi, was in London, giving similar reassurances to investors.
“We built the windmills before the storm … we are not focused on the storm, but what comes after,” Manuel told journalists.
The confidence wasn’t just rhetorical either. Keeping the budget in surplus while delivering corporate tax cuts and spending increases on infrastructure as well as welfare, education and health seems almost implausible against a backdrop of declining growth prospects both at home and in major export markets such as the United States. Tax collection that consistently exceeds even the rosiest expectations, however, makes it possible and the Treasury’s expectations for robust collection even as economic growth slows to 4% defy the general gloom.
Manuel pointed out, as he does every year, that Treasury growth predictions have for years been more accurate than private-sector numbers.
Meanwhile, doing away with substantial bits of the remaining exchange-control regime and allowing investment houses to increase their offshore exposure at a time when money is flooding out of the country were counter-intuitive gestures calculated to create the very sense of calm that they seemed to express (currency markets weren’t so sure, with the rand taking an immediate 3% dip — the first time in years that the currency has reacted to the budget).
Holding the line on industrial policy
A powerful lobby within the government, led by the presidential economic policy unit and Deputy Minister of Trade and Industry Rob Davies, has been pushing for dramatically expanded measures by the state to support emerging industries and vulnerable sectors of the economy, particularly labour-intensive manufactures such as clothing and vehicles. It wants a mix of subsidies, tax breaks and more aggressive trade policy to help grow local manufacturing.
The Treasury has been resisting these plans, believing that they threaten to undercut competitiveness and divert resources that could more efficiently be used elsewhere.
Manuel made minor concessions here, offering R2,3-billion in hard cash and R5-billion in tax breaks “in support of industrial development and employment creation”, but he took several swipes at any industrial policy premised on support for specific sectors of the economy.
“Business development is not a core responsibility of government,” he told MPs, “but where it contributes to drawing the marginalised and excluded into the mainstream of economic activity, then it has a rightful claim on public support.”
That amounts to a strictly limited vision of what state support for industry can appropriately do and certainly does not reflect support for the sweeping economy-wide measures sought by the Trade and Industry Department.
Davies stared up at the public gallery and bounced his fist on his desk as Manuel went on: “This house and every taxpayer shares with us a responsibility to question continuously whether our incentives are based on sound policies and criteria, not on favours for special interests masquerading as the public good.”
Glancing up at the public gallery, he then sent a direct message to Congress of South African Trade Unions general secretary Zwelinzima Vavi: “I address myself to Mr Vavi: there is no escape for any of us; we are in this together.”
Asked whether, in fact, the failure of other departments to deliver suitable “real economy” reforms meant that South Africa was doomed to modest growth regardless of the Treasury’s efforts, Manuel said: “Perhaps you are asking the wrong minister.”
Slow and steady on social grants
Manuel continued, too, the incremental approach to the expansion of South Africa’s social safety net, announcing that the reduction in pensionable age for men from 65 to 60 would be phased in over three years. Buried in the Budget Review, too, was another caveat — in the near future, consideration will have to be given to raising the pensionable age across the board as life expectancies increase.
Civil society campaigners such as Black Sash, and Vavi himself, complained that the approach was still far too cautious.
Treasury officials, however, point out that nearly one-quarter of the population, 12,4-million people, now receive some form of grant assistance and further expansion of the system is mooted.
“I was very encouraged to hear the new secretary general of the ANC [Gwede Mantashe] speaking about the importance of sustainable policies,” Treasury Director General Lesetja Kganyago said.
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