By Norm Dixon
JOHANNESBURG — Hopes that the African National Congress-dominated government of national unity (GNU) will rapidly move to redistribute wealth and economic power have begun to fade with the presentation of its first budget in Cape Town on June 22. Finance minister Derek Keys (who also held that post in the previous National Party regime) outlined a program of modest increases in social spending, a minor tax increase for the better-off and tax cuts for business.
The overall budget fell within the parameters set by the International Monetary Fund and the stated wishes of spokespeople for local and foreign big business.
The budget proposes an overall increase in government spending of 10.2% for 1994-95. However, inflation is likely to range between 7% and 10% over the same period. Overall spending on social services (education, health, social security, housing, culture and recreation) for South Africa's 35 million people has increased to 45% of the budget from 44.1% the previous year.
Spending on housing will rise 15.6% (to R2.2 billion or A$900 million), health by 7% (to A$5.6 billion), education by 11.5% (to A$11.6 billion) and pensions by between 5% and 6%. The Department of Water Affairs, responsible for providing clean drinking water to all South Africans, gets an increase of 13.9% (to A$187 million). Job creation will be boosted by a sum of R222 million (A$90 million) for 450 public works projects.
Contrary to pre-election promises by the ANC, the defence budget has been increased by 8%, to R11.2 billion ($A4.5 billion). However, a portion of this allocation ($A700 million) is for the integration of the various military formations into the new South African National Defence Force. The budget for South Africa's secret police, the National Intelligence Service (whose administration reportedly falls within the responsibilities of deputy president F.W. de Klerk), has been shaved to R427.5 million (A$170 million) from R434 million. The South African Police Service gets a 10.9% boost to R7.2 billion (A$2.9 billion).
Keys said that a maximum of R37.5 billion ($A15 billion) would be diverted to fund the Reconstruction and Development Program over five years. The allocation to the RDP fund would rise by an extra R2.5 billion (A$1 billion) each year, until it reaches R12.5 billion (A$5 billion) in 1999. This money would be found through savings within government departments.
This pledge was meant to reassure local and international big business that the ANC's ambitious RDP goals would not be achieved through increased taxes on business, through increased borrowing, which would result in higher interest rates, or through a "spending spree" requiring redistribution of wealth from the rich.
The IMF, which loaned South Africa US$850 million for "drought relief" last year, has insisted that the budget deficit be kept to 6% of GDP. Foreign investors have echoed this demand as a bottom line to restore "investor confidence" in South Africa. Keys announced that the budget deficit for 1994-95 would be 6.6%, a reduction of 0.3%.
Taxation
The government did announce a "one-off" tax levy of 5% of income over R50,000 (A$20,000) for both individuals and companies. It estimated that this will affect 30% of taxpayers and 15,000 companies. Revenue raised would cover the costs of South Africa's transition to democracy (overspending by the Independent Electoral Commission, the Transitional Executive Committee, deployment of the SADF during the elections and the presidential inauguration on May 10) rather than the RDP.
Indirect tax remained despite a pre-election ANC pledge that the 14% VAT would be lifted from food and basic services. Excise duty on alcohol and tobacco was moderately increased.
Company taxes will be reduced from 40% to 35%, continuing the trend of declining company tax begun by the National Party. The surcharge of 5% on the value of imported capital goods will also be abolished. These measures will reduce the private sector's contribution to revenue by R1.4 billion, almost equivalent to the amount allocated to the RDP fund this year.
These reductions are being made in the hope that the windfall will be channelled by companies into job-creating investment and not into unproductive land and stock market speculation (as has been the case in Australia and New Zealand when similar profit-boosting measures were taken).
Keys' ANC deputy, former unionist and SACP leader Alec Erwin, endorsed the thrust of Keys' budget, describing his speech as a "remarkable" balance of priorities. Arch-monetarist, NP-era survivor, and Reserve Bank governor Chris Stals said he was encouraged by the thrust of the budget, praising the reduction in the deficit as a percentage of GDP.
Reaction from big business has been virtually unanimously positive, while the response from representatives of the mass movement has been mixed and muted.
The South African Chamber of Business described the gradual funding of the RDP as "eminently sensible" and welcomed the reduction of taxes on business. President of the National Association of Automobile Manufacturers Bert Wessels agreed. Anglo American, South Africa's largest conglomerate, described the budget as "responsible" and striking the right balance between reconstruction and development and fiscal discipline. The chief economist for the insurance giant Sanlam, Johan Louw, said the economic blueprint was "investment friendly".
South Africa's main financial newspaper, Business Day, endorsed the "trickle down" approach to poverty alleviation: "Keys has produced a budget designed to generate the soundly based growth we need if the economy is to create jobs and allow the fair distribution of wealth and social spending necessary for national stability. He had no choice but to put growth above all other considerations ... while helping government avoid the temptation of fiscal indiscipline."
Union disappointment
The COSATU trade union federation expressed disappointment at the failure to abolish VAT on food and basic services. It praised the tax levy on the better-off and said that the budget created a framework for the government to "move in a RDP direction ... It's a holding budget and the next one must reflect a more definite RDP orientation."
National Council of Trade Unions assistant general secretary Masemola Skhosana said that the initial R2.5 billion for the RDP fund was minimal "if we consider the needs of the people". The continued VAT on food and basic services also rankled.
The National Progressive Primary Health Care Network said the increase in health spending was insufficient to redress the inequities in health care. Failure to exempt basic food and medical services from VAT, and inadequate job creation programs would adversely impact on health.
The Wits University Centre for Health Policy said the health budget had been cut in real terms. Health minister Dr Nkosazana Zuma agreed. She had not been consulted, she said. Plans to extend health services would now not be possible.
Nan Cross of the antiwar group Ceasefire Campaign told Green Left Weekly the increase in defence spending was "totally unacceptable compared to the amount going to the RDP". Cross said that there was no external threat to the country. Ceasefire would have preferred to see the bulk of the defence budget turned over to the RDP fund.
"The real threat to the country is the threat of poverty, unemployment, dissatisfaction and homelessness", she said. Money spent on public works created far more jobs than money spent on high-tech armaments. For every R3.7 billion spent on arms, 100,000 homes could be built, Cross added.
'Very limited'
Spokesperson for the South African Communist Party Jeremy Cronin described the budget as "very limited" when contacted by Green Left Weekly. "We knew it would be so; we are not being excessively critical but neither are we being excessively euphoric. It's very much a budget prepared by the old regime into which the new governmental and extra-governmental democratic forces have tried to negotiate a little bit of RDP", he said.
Cronin said there was some concern that a preoccupation with limiting government spending may become a pattern in coming years. "While broadly we are very supportive of the RDP document, there are elements of it which are borrowed from neo-liberal discourse, one of which is restrictions on government spending ... The RDP envisages redistribution within the budget rather than increasing the budget."
Cronin agreed that the democratic movement must prevent the RDP document's commitment to "macro-economic stability" becoming the overriding concern at the expense of wealth redistribution.
Business Day's editorial on June 23 expressed the South African ruling class's hope that the ANC will not be swayed by its millions of impoverished supporters: "Many investors here and abroad remain wary of South Africa's new government. It still has to prove its credentials conclusively and, as a result, it is likely to be under greater scrutiny than its predecessor. This budget has set the tone, and has shown that government's financial planners believe the business of South Africa can be business."