By Norm Dixon
The African National Congress-led government of national unity (GNU) signalled that there will be no significant change in post-apartheid South Africa's economic direction when it announced its third budget on March 13. The budget included significant reductions in taxes on business, tax relief for the well-off and a promise to continue to maintain tight control of government spending. Overall spending was increased a mild 3% above the expected inflation rate of 7.5%.
South Africa continues to suffer the terrible legacy of apartheid. More than 50% of the population is unemployed, 13 million are homeless or live in substandard dwellings, and the health and education systems are in crisis. In its 1994 election campaign, the ANC promised that by 1999, 1 million houses would be built, clean water from a source within 200 metres would be available to every person, health and education would be radically improved and jobs would be created through public works.
To achieve this, the ANC needed rapidly to begin redistributing the massive wealth accumulated by South Africa's predominantly white ruling class. In its first two budgets, however, the GNU went out of its way to reassure the rich that the needs of South Africa's vast majority would not be addressed at the expense of their wealth and privilege.
Hopes were high that this direction would change once the ANC-led government had become firmly established. But the 1996-97 budget presented by finance minister and banker Chris Liebenberg once again emphasised maintaining "investor confidence" as the key priority.
Taxes on companies were cut and the top threshold for income tax shifted upwards to 100,000 rand (A$60,000) from R60,000. Liebenberg committed the GNU to cutting the budget deficit to 5.1% of GDP (from 6% in 1995-96). The government would aim to continue reduce it in coming years, aiming at 4% by 1999, he pledged.
The ANC's election promise to abolish the regressive value added tax was again not honoured, and no new exceptions on essentials, such as kerosene, were added. Liebenberg hinted that VAT would increase as soon as social security safety nets are in place.
The GNU did announce modest above-inflation increases for education, health, "community policing" and provision of water. The increases were drawn from cuts in spending on "non-priority" items such as nuclear energy, the military's "dirty tricks" defence special account and "administrative expenditure in education". No specific increases in welfare were announced.
The money allocated to housing has been cut dramatically, from R4 billion to R1.5 billion, although R3.1 billion left unspent from last year's budget has been "rolled over" to this year. Defence spending, while down, still accounts for R10.2 billion, almost double the education budget.
No more moves were made towards privatising state assets. Instead, government utilities and other holdings will continue to be "restructured" and commercialised for possible future partial or full sale.
News on employment was mixed. The public service is to be "downsized" and "rightsized", meaning that government employment will be reduced and skill levels increased. It seems unlikely this can be achieved without retrenchments, and those most likely to suffer are the lowest paid and least skilled, mostly black but also Afrikaner, workers. Just R100 million was allocated to public works programs.
The GNU did not deliver everything big business wanted, however. In an ambit claim, the South African Foundation — representing the country's biggest companies — proposed that the deficit be slashed to 2% or less and that VAT be substantially increased while direct taxes be cut. It called for a "brisk privatisation program".
Despite this, the response of business was positive. Markets responded favourably; the value of the rand against the dollar improved. Natwest Securities economist Nic Barnard welcomed the deficit reduction, saying it showed "the message had come home" to the government and that it was "moving in the right direction".
Leslie Boyd, chairperson of Business South Africa and Anglo American Industrial Corporation, was more muted, describing the budget as "the minimum we could have expected and an example of what the government felt was politically possible rather than the clear display of courage our leaders should have shown".