Minister of Finance Barend du Plessis said he was giving high priority to stimulating economic growth and generating jobs. He said his budget would contribute to social upliftment and the provision of equal opportunities. But the figures didn’t seem to indicate how these ideas would translate into action.
On the surface it looked like a budget which could stimulate the economy, with estimated government spending exceeding revenue by R8,4-billion in 1987/88. But while government spending estimates for the coming year look much higher than last year’s, at R46,8-billion, this is an increase of only 16,2 percent up on the previous year. So the increase will hardly keep pace with inflation, likely to be between 16 and 17 percent. More to the point, much of therise in spending appears to be “non-productive” in that it will not provide much stimulus to economic growth nor win it create many jobs.
As expected, government’s priorities are strongly evident in the expenditure side of the budget, with the defence vote up 30 percent to over R7-billion and that for police up by almost 43 percent to R 1,8-billion. These two items together account for 19 percent of total spending and the figures on the budget may not reflect the real amounts which go into financing them. The constitutional maze of apartheid structures win cost more too. The “independent homelands” are to be rescued from financial problems via the Foreign Affairs vote, which rises by 60 percent.
Further chunks of expenditure go towards the three houses of parliament, the self-governing “homelands” and black local authorities. And the government will look after the farmers, with more than R1-billion voted for support programmes for agriculture. On the other hand the allocation to education is to rise by 20 percent: “Our largest single investment in the future,” as the minister called it. Education is the biggest single item in the budget, taking 19,6 percent of total expenditure in the coming year. The important figure is the 40 percent increase in spending on black education.
South Africa now allocates a higher proportion of its budget to education than do most industrially developed or developing countries. Government spending on education has increased steadily over the last decade and is partly reflected in the huge growth in the number of black pupils and students.
Du Plessis’ stated aim of “equality of opportunity” in schooling remains far off though – especially given the costs of three different educational authorities. Like the increases in defence and policing votes, the education vote reflects an attempt by the government to respond to the mass scale resistance and opposition of the past few years – two sides of the State of Emergency.
Search the budget though for significant job-creating investment and it’s hard to find. The only item clearly directed towards employment is a vote of R 15-million for the Small Business Development Corporation. It is intended mainly to make it easier for the SBDC to acquire investment capital, so that it can assist development of small businesses and so create work.
The amount voted is tiny, relative w the magnitude of the problem. There are other items of government expenditure which clearly involve creation of jobs or retention of existing ones but the budget estimates are not very revealing about what money is being spent on what and where. Transfers to homelands, black local authorities, provinces and Namibia would include some investment spending as would, for example, the education and defence votes.
But the budget doesn’t offer detailed breakdowns. What is revealing, however, is that proportion of total government spending classified as capital, rather than current expenditure is only about 18 percent. The government spending issue is a thorny one among economists, especially when it comes to strategies of economic growth and job creation. There are those economists who believe that government expenditure is already much too high in South Africa and have responded to Wednesday’s budget with concern.
They point to the government’s stated aim of reducing the public sector’s share of the economy and argue that there is no sign of any attempt at this in the budget. Their argument is that the private sector is far more effective as an engine of growth and job creation in South Africa and the budget does little to promote these goals.
The budget they have argued, will stimulate the economy in the short term but would have undesirable longer term effects. Against this are those economists who see the government as having a major role to play in investing to stimulate employment. But this budget will not promote that goal, they argue. It’s a bland budget and its effect on the economy will be neutral – a mere accounting exercise.
“I’m not so sure the economy can gather momentum without additional stimulus says Dr Ockie Stuart director of Stellenbosch University’s Bureau for Economic Research. “The private sector can only boost the economy by investment and at the moment they have no need to invest because they are running at overcapacity. So government should have budgeted more for capital expenditure.” “The budget speech opened up with some splendid statements,” says Nedbank economist Edward Osborn. “But it did not relate this to actual spending or revenue.”
On the revenue side of the budget, it was a case of waiting for the Margo Commission. The commission’s report on the South African tax system has been submitted to the State President but will not be published before August, together with government’s response. It could, according to Du Plessis, “have a drastic impact in several spheres of economic life”. Tax rates are unchanged in the budget although Du Plessis emphasised that this budget should be read with the “mini-budget” in Febuary in which various tax concessions were announced with the object of stimulating the economy.
Thus those who hoped for a reduction in general sales tax or personal income tax would have been disappointed but not surprised on Wednesday. Government income from personal income tax is expected to amount to R12,1-billion in the coming year, while company tax will be R5,8-billion and taxes from gold mining R3,2-billion. General sales tax should bring in R10,7-billion.
Figures published with the budget show that the proportion of tax revenue contributed by individuals has increased markedly in the last 10 years, and the Margo Commission’s “drastic” proposals should be interesting. Tax monies and income collected through customs and excise duties together should bring the government 14,7 percent more money than it collected last year. With increases in estimated revenue, less than those in expenditure, the budget deficit before borrowing amounts to 4,7 percent of gross domestic product, higher than it has been for some years in South Africa.
The size of this year’s deficit is not unexpected: Most commentators predicted that expenditure would exceed revenue by up to five percent. Nor is it necessarily undesirable in the present economic climate. It makes sense for the finance minister to budget for government stimulation of the economy in the form of increased spending and/or reduced taxes, to support the economic upturn which he anticipates.
In a booming economy a budget deficit might raise interest rates, causing inflation and damping down private sector investment. But the South African economy is not booming and the financing of the deficit is not expected to push interest rates up. What worries budget analysts about the deficit is its nature. The figures suggest that a substantial proportion of government borrowing will be covering current spending, for example on salaries, rather than investment spending.
“The very large deficit before borrowing is well in excess of capital formation so a significant element of borrowing will be required to finance recurrent expenditure,” argues Nedbank’s Osborn. “This is a bad sort of principle in fiscal policy.” “Expenditure has grown and we won’t have anything tangible to show for it: The deficit is not increasing growth,” says Gin Raine, economist at stockbrokers Frankel Kruger. “Deficits don’t necessarily matter but they do if they are going to finance consumption expenditure.”
Raine also expresses concern about the government’s ability to finance its accumulating debts in the future, with government spending going towards non-productive items rather than promoting future economic growth.– Hilary Joffe
First, compassion. Then, out with the switchblade
There’s a point in the budget speech which alludes to the need for ‘Christian compassion’. It’s a point the Minister may perhaps have forgotten later on …. Comment by Duncan Innes
“The last few years were among the most difficult we have experienced, and called for sacrifices by one and all. But that those sacrifices were worth it is now clear: The economic tide has turned towards growth and development and we can justifiably look forward in new confidence.”
With these optimistic words Barend du Plessis began his long-awaited 1987 budget speech. No doubt there were many South Africans, especially the 3,3- million unemployed black workers, who hoped that his optimism was justified. But the good news was just beginning. The budget, according to Du Plessis, “reflects the mandate given by the majority of white voters to their representatives in both the House of Assembly and the Government to embark on far-reaching further steps towards the broadening of democracy”.
To those of us who were not aware that there had already been any steps towards broadening democracy this came as a bit of a surprise. “Various socialist approaches in Africa,” continued the minister, “have been unable to offer hope of escape from hunger and misery.” This is no doubt a point which the aforementioned 3,3 million workers and their families, who have lost jobs under capitalism and have no proper social security benefits to support them, win appreciate.
But then, via an interesting religious allusion, the minister introduced a rather clever idea that the budget “must, while showing the compassion due by a Christian government to the less privileged and the needy, remain true to the conviction that it lies with the individual to strive for the greatest possible self-sufficiency … to promote thrift and provision both for one’s working life and for retirement”.
In a rare moment of cynicism I wondered whether the minister wasn’t perhaps suggesting here that having thrust the economy into deep recession a few years back and destroying numerous jobs and livelihoods in the process, this Christian government wasn’t now telling “the less privileged and the needy” that they were on their own.
No, I thought a Christian government would never do such a thing – until I heard the minister say that he was slashing the unemployment support programmes by 35 percent or R100-million (from R281-million to R181,4-million). But the final disillusionment came when Du Plessis announced that the budget “must – extremely importantly – provide for the maintenance of law and order in the face of an unprecedented escalation of the risk of violence, and where possible act preemptively in this regard”. In other words, we could expect a budget which sought to deal with our social problems, not by alleviating the plight of the underprivileged, but by arming the state against them.
One does feel a certain sympathy for the minister in having to prepare a budget under extremely stressful conditions. Not only does he have to cope with problems of sanctions, disinvestment and repayment of foreign loans, but he also has to stimulate the economy to promote growth and alleviate unemployment, without stimulating inflation and always remembering to meet the expanding needs of the forces of “law and order”.
Of course, it is only fair to point out that most of Du Plessis’ problems arise from the fact that his government persists in clinging to apartheid in its various guises. For instance, on the tricky issue of inflation the minister links the rise in inflation over the last two years “to a great degree” to the depreciation of the rand.
However, what he fails to mention is that the depreciation of the rand itself arose from State President PW Botha’s disastrous Rubicon speech and the subsequent states of emergency. This tendency to refuse to locate the real source of the country’s problems emerges again in Du Plessis’ speech when he claims that our “unacceptably high levels of unemployment” arise from “a high rate of population growth”, which itself is a product of the fact that “South Africa is a developing country”.
The fact that it was the policies of his government which drove blacks off land they had occupied productively for generations and now cannot provide jobs for them seems to have escaped the minister. Again, for Du Plessis, the problem of “an unbalanced distribution of wealth and income between the several population groups” has nothing to do with apartheid but arises, instead from the fact that “South Africa is a developing country”.
Having failed to identify the real sources of out social and economic problems, the minister cannot offer any meaningful solution to them in his budget: All he offers is more of the same bitter apartheid medicine. In addressing the education crisis Du Plessis proclaims that “in contrast with many other countries it is precisely through education that we are making our largest single investment in the future.
The minister is here referring to the fact that the budget allocation of R9,1-billion to education is “by far the largest single allocation, comprising 19,6 percent of the entire budget.” The education crisis cannot be resolved by simply increasing the quantity of education; what is more urgently required is to improve the quality – and that means dropping Bantu education and its white twin sister, Christian national education.
A similar area of wasteful expenditure may be identified under the heading of “Foreign Affairs” which shows a 60 percent increase over last year (up to R2,176-billion). The minister points out that this increase “arises chiefly from an increase in aid w the TBVC countries”. Having declared these “independent” states in deprived areas where the populations could not possibly support themselves the government is now forced to spend a fortune on bolstering their economies and maintaining the regimes in power.
Finally, there is the issue of the 30 percent increase in the allocation to defence and the 43 percent increase to the South African Police. The South African Defence Force itself put out an explanatory memorandum on its budget vote in which it argued that “the Defence Force is very much aware of the fact that a stable and healthy economy is just as much a prerequisite for a strong Defence Force as a strong Defence Force is a prerequisite for a healthy economy”.
Whichever way you look at it defence expenditure is mostly a drain on any economy’s resources in terms of both manpower and finance. But more than this, the continued presence of troops in the townships, coupled with escalating cross-border raids against our neighbours, can only further fuel the disinvestment and sanctions campaign abroad. And that is not healthy for the economy.
A guns-first budget, say the unions
The two major trade union federations and the End Conscription Campaign have condemned the budgets for its emphasis on guns: soldiers and policemen rather than housing unemployment and poverty. The Congress of South African Trade Unions said the increase in the expenditure on the defence and the police showed the government was incapable of a budget seriously addressing the country’s problems, Sapa reports.
Warning that increased defence and the police budget did not bode well for South Africa and the rest of the sub-continent, Cosatu said “the most telling indictment of the budget is the fact that these items can increase by such large amounts when the expenditure on social services appears to have increased by a mere rave percent”. “Heavy state borrowing will be inflationary and, as we have seen with the South African Transport Services and the post office, will be financed by price increases, (which) will keep the rate of inflation high to the detriment of workers and the poor,” said Cosatu.
Phiroshaw Camay, general secretary of the National Council of Trade Unions said the budget indicated that the government “wants to continue to protect white voters. “There is no tax increase at the upper end of the tax bracket … yet black workers with lower earnings will pay general sales tax at the same 12 percent rate.” The increase in the police and defence budget meant the State of Emergency would continue and repression would escalate at a level of totalitarian dictatorship, he said. “There is still no parity in the education expenditure between black and white school children.”
He said the government’s intention to continue the farcical constitutional development plan by another R1 194-million was a blatant waste of taxpayers money. ECC national secretary Adele Kirsten said the government “has chosen the path of war and is budgeting for bombs rather than bread. The 1985 defence vote constituted 13,6 percent of the budget; this year it had risen to 14,4 percent.
The defence budget had increased by 22 times since 1972, she said. “A recent United Nations report stated that real expenditure on South African security forces was about 30 to 35 percent more than the official security force vote. This would bring total security force expenditure in 1987 to about R11-billion.” – Hilary Joffe
None of that ‘quoting the classics’ stuff for Barend
It is, suppose, unfair to carp at young Barend du Plessis for the dullness with which he delivered his budget speech.
After all, it must have been hard enough for him to learn the language in which money talks without expecting the fine wiling phrases, larded with quotations from the classics, with which former ministers of flounce saved their audiences from creeping slumber. But the budget was dull, dull, like a menu you’ve been handed before and on which you know that everything you may fancy is “off”.
Harry Schwarz, the Progs’ perspicacious spokesman on finance, found it equally unexciting. The budget was a great non-event”, he said within minutes of Du Plessis stepping off the rostrum. “It’s unimaginative: there’s nothing in it that will encourage businessmen to create more jobs or invest more money. “Clearly, we can expect another stimulatory package later in the year. This one is clearly not going to take off.”
Once again, Du Plessis’ worst enemies in his yet-unrealised aim of producing a credible budget seem to be his cabinet colleagues. It is no comfort at all to pensioners to learn that they can now buy “granny” bonds carrying 15 percent (taxable) interest when they learn from the estimates that the state president’s pay is to be upped to a tax-free R135 000 a year from R109 000, Ministers, deputy ministers and MPs will get handsome increases as well, according to the estimates.
The Railways and Post Office budgets showed that government departments react to loss-making by milking the consumer of more money for rail fares (air rues went up earlier, remember?), telephones, telegrams, the cost of posting a letter and so on. And the estimates have an equally sorry tale to tell: there are some massive increases over last year defence up 30 percent police up 50 percent (mainly on increased personnel costs), secret services up 17 percent and budgetary aid to the “independent homelands” almost doubled.
That this is a fair comment on exactly where the government’s priorities lie was (possibly unwittingly) let slip by the minister himself, who kicked off his speech by saying that for the first time the budget was based on “approaches and priorities laid down by the President’s Committee on National Priorities”.
“Allowance has had to be made for the present exceptional circumstances and the plan will be re-evaluated later this year and adjusted if necessary. “It relates to state revenue collected under a tax system which stands on the threshold of renewal.”
What was not quite clear, however, was how the minister justified his next remark, that the budget “reflects the mandate given by the majority of white voters to embark on far-reaching steps towards the broadening of democracy.”
Nobody I have spoken to up lo now has been able to throw any light on this remarkable piece of gobbledygook. Maybe it will become clearer during the budget debate – if anyone can stay awake long enough to listen to it. – Jean Le May
This article originally appeared in the Weekly & Mail newspaper