Business as usual as Manuel presents the 2009 Budget
Finance minister Trevor Manuel wasted no time in setting the tone for his 2009 Budget Speech. His opening line: “The storm that we spoke of last year has broken, and it is more severe than anyone anticipated.”
Manuel went to great lengths to explain the impact of the global economic crisis on local companies and employees. “When a global motor company cuts back on making cars, it cancels its orders for catalytic converters,” he said. And proceeded to tell the audience that the factory they should worry about was “not in Detroit or in Shanghai” but in the Eastern Cape. The workers threatened by recent events weren’t in America or China; but the factory worker in Uitenhage and the mineworker in Rustenburg.
The minister warned that South Africa’s GDP growth for 2009 would fall to around 1.2%, the lowest rate since 1998. This was due to consumer weakness, an expected decline in private sector investment and lower exports from the commodity sector. The country’s latest manufacturing figures (showing a 7% decline year-on-year to December 2008) certainly confirm Manuel’s fears. The challenge for National Treasury is to deliver a budget that balances the hopes and needs of the individual within the constraints of contracting revenue.
Treasury’s five pillars
“The central goals of economic policy remain accelerating growth and job creation, broadening economic participation and reducing poverty,” said Manuel. In light of this the 2009 Budget centres on five key areas. We’ll take a few moments to consider policy under each heading:
1. Protecting the poor
As expected the latest budget includes many steps to assist the poor. Manuel added R25bn to provincial budgets (earmarked for healthcare and education), R13bn for social assistance grants, R4bn for school nutrition programmes and R2.5bn to municipalities for basic services. We appreciate the minister’s “it’s what the money buys that matters” sentiment in this section; but don’t find much in the speech that suggests the intended recipients of these monies will better served going forward. South Africa’s ‘bang for buck’ performance in the health and education departments is abysmal. And billions of rand intended for the poor evaporates in the hands of tender recipients each year.
2. Sustaining employment growth and expanding training opportunities
Treasury says that government “will work with business and organised labour to protect work opportunities and accelerate skills development” in the next year. Additional funds have been made available to Working for Water and Working on Fire programmes and Manuel also announced R1bn for the Umsobomvu Youth Fund and R3.7bn for low-income housing projects. Our main concern under this heading is the R4.1bn allocation to Phase II of government’s so-called expanded public works programme. Government’s responsibility in this area is to establish an environment that encourages business (both local companies and international investors). They should leave the actual job creation to the private sector. Public works programmes don’t create sustainable job opportunities and there’s no honour in placing picks and spades in the hands of the poor and claiming victory as a skills facilitator.
3. Building economic capacity and promoting investment
A country that hopes to grow fast enough to ensure better lives for all its citizens must have the capacity to do so. We’ve witnessed, for example, the hardship caused by Eskom’s woes in January 2008. Thus Manuel’s third pillar is a major ramp-up in infrastructure investment. Treasury has allocated a number of additional amounts as part of the longer-term R787bn plan. “R6.4bn is added for public transport, roads and rail networks, R4.1bm for school buildings, clinics and other provincial infrastructure projects, and R5.3bn for municipal infrastructure and bulk water systems.” The numbers look great on paper; but in reality they’re way too small to make major inroads into existing backlogs. We only hope the systems are in place to ensure this money is fully applied to the intended projects.
4. Addressing the barriers to competitiveness that limit an equitable sharing of opportunities
A competitive economy is essential if South Africa hopes to win the battle with international companies. Manuel increased the budget allocations by R1.6bn for the “industrial development and small enterprise support programmes” and R1.8bn for “rural development and small farmer support.” Recent developments in agriculture are a major cause for concern. We’ve heard some interesting proposals to enhance the subsistence farming to contribute to the sector in coming years.
5. And, in doing these things we must maintain a sustainable debt level so that our actions today do not constrain our development tomorrow.
The fifth column in Manuel’s plan supports all the others. Parliament was left in no doubt that government’s ability to provide massive assistance to the poor hinged on prudent fiscal strategy. “In the present global uncertainty, our task is to respond to the economic downturn without putting our long-term financial position at risk,” said Manuel. Although he hikes the budget deficit to 3.8% of GPD in the 2009/2010 year he notes the “debt service costs” remain reasonable at 2.5% of GDP.
And finally, the news you’ve been waiting for
Manuel once again announced significant reductions in the personal income tax burden. He provided inflation relief (by moving income tax brackets) and some additional respite to the so-called low and middle income classes. This would ‘cost’ Treasury R13.6bn in the 2009/2010 year. The income threshold for income tax is moved to R54 200 for taxpayers under 65, and R84 200 for those over 65. If your income is less than this amount you won’t pay income tax at all.
We were really enjoying the budget speech until Manuel sneaked in the following shocker. He announced a 23c to 24c per litre increase in the government fuel levy from 1 April 2009 and a 17.5c increase in the Road Accident Fund (RAF) levy. It’s common cause that the country’s roads are in a shocking state – and that the RAF is pathetically managed. This decision places an additional inflation burden on the entire economy. And our last rant on the topic is that no-one objects to paying additional taxes if the promised improvements are delivered; but they seldom are!
Editor’s thoughts:
We’re sure most of you will have read a number of news articles covering the budget changes. Do you have any comments about Manuel’s 2009 Budget Speech? Add your comments below, or send them to [email protected]
