By Norm Dixon
The African National Congress (ANC) government's 1997-98 budget has disappointed its working-class supporters with its emphasis on cutting government spending and its unwillingness to begin the massive redistribution of wealth necessary to cut unemployment, homelessness and poverty.
The budget was presented on March 12 by finance minister Trevor Manuel, the first member of the ANC to hold the powerful post. It continued the conservative economic trend of previous budgets, setting an overriding goal of "fiscal discipline". Government spending is to decline by 2.4% in real terms after inflation of 8.5%. The public service work force of 1.2 million will be reduced by 100,000 each year until 1999.
Real spending on education declined by 5.7% while spending on health increased by just 1%. Health and education are also likely to suffer due to a 4% cut in grants to the provincial governments. South African Democratic Teachers Union leader Thula Nxesi reminded the ANC, "Thousands of our children are still learning under trees".
The land restitution fund, which finances the purchase of land for redistribution, was slashed from 116 million rand (A$30 million) to R64 million. The Department of Water Affairs suffered a 17% cut in real terms, with community water supply and sanitation bearing the brunt.
The defence budget lost 15%, but the R700 million was transferred to the police and prison departments. The defence cuts may prove to be illusory after cabinet considers purchases of warships, submarines and jet fighters next year.
The budget's gains for workers and the poor pale into insignificance against the terrible legacy of apartheid. Those earning below R60,000 were given income tax cuts. But the ANC again failed to honour its 1994 pledge to abolish the value added tax, which adds 14% to goods and services, hitting the poorest hardest. Indirect taxes on beer, wine and tobacco jumped 50%.
An extra R1 billion for welfare and R300 million for community-based poverty relief programs were announced. A 9.8% rise takes pensioners' income to a meagre R470 ($117) a month.
The housing budget received a much needed boost of 11.5% in real terms (less impressive when last year's 60% cut is taken into account). The budget papers reported that 123,000 houses had been built since March 1994, with another 192,000 to be completed by next April. The goal set in the ANC's Reconstruction and Development Program was 1 million houses by 1999.
In 1994, 13 million South Africans were homeless or living in shacks. At least 150,000 houses need to be built every year just to keep up with increased need.
Big business and the wealthy gained with a relaxation of foreign exchange controls and no increases in company or personal taxation. Previous ANC budgets slashed taxes for companies and the rich.
Manuel's budget was praised by big business. The South African Chamber of Business said that the needs of a "globally competitive" economy and addressing poverty had been "suitably balanced". Danie Folscher from Coopers and Lybrand said: "The restraint shown in avoiding 'milking' the rich in favour of the less advantaged is commendable ...".
Congress of South African Trade Unions assistant general secretary Zwelinzima Vavi said COSATU was disappointed. "COSATU set job creation as one of the key components against which the success of the budget and general economic policy is to be measured. The budget fails this test."
Vavi pointed out that while the economy grew by 3.1% last year, there was virtually no increase in jobs. Official unemployment stands at 29% and all agree it is much higher. COSATU calls for a "massive housing and public works program" to create 500,000 jobs, funded by a capital gains tax, taxing the "super-rich" who earn over R100,000 at 55%, making large corporations pay "their fair share of tax" and closing tax law loopholes.
In contrast, the South African Communist Party said it "generally welcomes the budget, specifically the targeted tax relief for lower income earners, and the significant increase in the housing budget ... public works, social welfare and pensions, justice and police". It added, "Limitations of the budget should not be blamed on the minister of finance or upon the government in general. They are limitations that are symptomatic of an economy that remains hostage to powerful domestic and international private sector forces."