O n Wednesday 15 February, our Minister of Finance, Trevor Manuel, presented the 2006-2007 Budget to the National Assembly and the country. All our people looked forward to this important annual statement of government with great expectation.
Naturally they were very keen to hear what resources would be committed to address the objective we have set ourselves - to accelerate our advance towards the achievement of the goal of a better life for all. They were interested to see whether this year's Budget would measure up to their confidence in, and optimism about a better tomorrow for our country and for themselves.
Immediately after the presentation of the Budget, the Reuters news agency reported that, "South Africa's economy is set to sustain growth at its fastest pace in more than 20 years, with surging revenues allowing the government to hand out hefty tax cuts for individuals and small businesses in fiscal 2006/07." The British Broadcasting Corporation (BBC) said "South Africa is slashing personal and small business taxes in the latest stage of a campaign to lower the burden on lower and middle income groups".
The financial journal "Moneyweb" said: "While there is much good news on the tax front for individuals - rich and poor - in this year's Budget the major theme coming through is sustainability and a desire to make the most of the successes so far wrought. This desire is predicated on an understanding that while the country's (economic) growth has been significant, it needs to be made use of while it lasts."
In what was his 10th Budget Speech, Trevor Manuel said: "The budgetary choices we make give life and meaning to the Age of Hope of which President Mbeki so rightly spoke in the State of the Nation Address. The budget tabled here today gives practical effect to our programme of social cohesion, and in particular to prioritising the needs of the poor, for that is what it means for the rich and the poor to share the privilege of a common nationhood."
Together with his speech and other documents, the Minister of Finance also tabled the 2006 Budget Review, which analyses the overall socio-economic context within which the Budget is prepared. In the Foreword to this document, the Director General at the National Treasury, Lesetja Kganyago, observes correctly that: "South Africa entered 2006 with a level of optimism befitting our young democracy, balanced by sober reflection of how much more we need to achieve. While we continue to make progress, the pressing challenges of social and economic development are a constant reminder of how much farther we need to travel."
In this regard, the Budget Review says: "South Africa's economic and social policies flow from the democratic values and respect for human dignity enshrined in the Constitution. Through the annual budget, Government seeks to ensure that social and economic rights are progressively realised, that the legacy of historical injustice is redressed, and that future generations will enjoy the fruits of broad-based development and robust economic growth."
Summarising our budgetary response to the task to ensure that the "social and economic rights (of all our people) are progressively realised", the Budget Review says:
"The 2006 Budget proposals give greater impetus to social development and public service delivery, continuing the strong focus on reducing poverty and extending basic services to all South Africans. Additional support targets a wide range of expanded programmes in housing, education, health, skills development, social security, justice and fighting crime.
"Government recognises the need to moderate consumption expenditure and ensure that investment enjoys priority in the allocation of available resources. A structural acceleration of growth, if it is to be sustained and shared by all, must rest on both broad-based capital formation and efficient public service delivery. Major public infrastructure investments are planned for the period ahead, and initiatives to improve the quality and efficiency of public administration are being strengthened.
"South Africa's main 'network industries' - transport, communications, water and energy supply - confront a series of complex strategic challenges with long-term consequences for growth and development. Several investment programmes, industrial policy initiatives and regulatory reforms aim to ensure that both infrastructure capacity and improved economic performance underpin accelerated economic growth and rising living standards.
"African development and peacekeeping initiatives, as part of government's international efforts to encourage peace and security, receive further support over the period ahead."
The "greater impetus to social development and public service delivery" mentioned in the Budget Review is reflected in increased annual and medium-term expenditures on various sectors. Thus during the three (medium-term expenditure framework - MTEF) financial years 2005/6 - 2008/9, the average growth in expenditure is projected as follows:
By any standard, these represent very large expenditures, as well as highly meaningful annual and medium-term increases. But perhaps more dramatic is the fact that these outlays will be met almost exclusively from tax and other resources that will accrue to government, without borrowing.
This means that our government will carry these enormous expenditures without having to borrow unsustainably large sums of money from the financial institutions. In other words, the "impetus" to which the Budget Review referred will not be financed by generating a significant budget deficit.
Our government's projections indicate that the state debt cost as a percentage of the GDP will decline during the MTEF period from 3.3% to 2.7%. During this period, the budget deficit will rise from 0.5% to 1.2% of GDP. To understand the scale of the turn-around with regard to the state debt cost, we should remember that by 1992/93, immediately preceding our liberation, the overall budget deficit had reached 7.9% of the GDP. Commenting on the phenomenal progress we have achieved in this regard, Minister Manuel said: "Part of the answer lies in financial policy and debt management: in 1998, for every Rand of revenue collected, 24 cents was spent on servicing state debt; in 2005 the debt cost 14 cents, and by 2009 it will be 10 cents."
To put this differently, this means that in 1998 from every Rand of revenue, our government had to pay 24 cents to the financial institutions from which it had borrowed money to finance the budget deficit, remaining with 76 cents to meet the needs of our country and people. Thanks to the manner in which our government has managed the public finances, the sum available in 2005 to address these needs had grown to 86 cents. It will rise to 90 cents by 2009.
These outstanding achievements, which have, over time, created more state resources to address the needs of the people, are a result of the work our government has been doing to implement the decisions of the Alliance and the rest of the broad democratic movement to achieve the correct macro-economic balances mandated by the Reconstruction and Development Programme (RDP) document we adopted in 1994.
In this regard, in his Budget Speech Minister Manuel made the important observation that: "In the noise and haste of economic policy debate, we forget too easily that there are long lead times in the practical implementation of policy. Our present economic performance reflects the choices we made a decade ago, and the economic reforms now in progress will yield their returns five and ten years from now. There are no joys without the nightmares that precede them and spring them into light..."
What he was referring to was what we had done to implement the macro-economic proposals contained in the 1994 RDP document, through GEAR, the Growth, Employment and Redistribution Programme adopted by our government in 1996.
In the section on "Vision and Objectives", the RDP document said that the democratic government must "ensure a macro-economic policy environment that is stable".
The document went on to say: "The existing (1994) ratios of the deficit, borrowing and taxation to GNP [Gross National Product] are part of our macro-economic problem. In meeting the financing needs of the RDP and retaining macro stability during its implementation, particular attention will be paid to these ratios. The emphasis will be on ensuring a growing GDP, improved revenue recovery, and more effective expenditure in order to make more resources available. In the process of raising new funds and applying them, the (macro-economic) ratios mentioned above must be taken into account."
To emphasise this perspective, the RDP said: "We must finance the RDP in ways that preserve macro-economic balances, especially in terms of avoiding undue inflation and balance-of-payments difficulties...Government policy and mechanisms of raising finance are crucial to the success of the RDP. If they were to cause excessive inflation or serious balance of payments problems they would worsen the position of the poor, curtail growth and cause the RDP to fail. Government contributions to the financing of the RDP must, therefore, avoid undue inflation and balance of payments difficulties. In the long run, the RDP will redirect government spending, rather than increasing it as a proportion of GDP..."
Commenting on our government's steadfast pursuit of these objectives, Trevor Manuel said: "Members of the House who have been with us since 1994 know that as we enter a new phase of policy development, under the Accelerated and Shared Growth Initiative (ASGISA), we do so on the strength of continuing implementation of our Reconstruction and Development Programme, which itself was supported by the macroeconomic consolidation initiated as the Growth, Employment and Redistribution Strategy."
Among other things, reflecting on the macro-economic adjustments and objectives called for by the RDP, this 1996 Strategy said: "What options are open to government? An expansionary fiscal strategy could be considered.
However, even under the most favourable circumstances, this would only give a short-term boost to growth since it would reproduce the historical pattern of cyclical growth and decline. Increased growth above 3 percent would be choked off by a rising current account deficit, upward pressure on real wages and curtailment of investment plans. Higher fiscal deficits would also lead to higher inflation and higher interest rates, exacerbating the burden of interest payments on the fiscus. More importantly, in the present climate of instability, a fiscal expansion would precipitate a balance of payments crisis. Without attention to more deep-rooted reforms, there is no possibility of sustainable accelerated growth."
Through GEAR, and consistent with the RDP, our government therefore decided to implement an integrated reform programme that would include, in the words of GEAR:
As a result of the implementation of this programme, leading to the reduction of the public debt, lower inflation and interest rates, and manageable balance of payments ratios, as well as the growth of our economy, we now have a larger volume of resources to meet the needs of the people and accelerate the rate of growth and development of our economy, the two central matters addressed in our government's 2006-2007 Budget.
Among other things, the Budget therefore provides for:
Towards the end of his Budget Speech, the Minister of Finance said: "Having reached this place, on our mountain journey, let no one speak of frontiers exhausted. We have ahead of us the joy of discovering, uncovering, and forging new forms, new ways, within an expenditure framework designed to accelerate growth, broaden reconstruction and development, and reinforce partnerships between state and citizen on which our progressive democracy rests."
This moment on our challenging mountain journey demands that, as "Moneyweb" said, we "make the most of the successes so far wrought". Acting in partnership, in a people's contract, state and citizen must use the favourable situation all our people have created together over the nearly 12 years of democracy, to achieve new advances towards the birth of the caring society and winning nation for which many sacrificed their lives. The 2006-2007 Budget has provided us with significant resources to realise this outcome.
