Trevor does his best to sound up-beat
On Tuesday, 21 October 2008, finance minister Trevor Manuel delivered his Medium Term Budget Policy Statement (the mini-Budget) to Parliament. His opening comments drew our attention to the financial crisis that has unfolded in the West and significantly
Conservative approach; but will income hold?
South Africa has benefited from robust economic growth of late. But after four years of 5% per annum GPD growth the target has been revised down. Manuel says “the revised GDP growth estimate for South Africa for this year is 3.7%, somewhat below our forecast of 4% in February.” For the following year the economy will probably grow at 3%. This economic stagnation means the minister has less money to apply to state expenditure. It’s something Manuel is quite aware of. “For the period ahead, as our economy slows, revenue growth is also anticipated to slow. In particular, revenue from corporate taxes and value added tax is likely to come under some pressure,” he said.
Unfortunately Manuel has no choice but to increase expenditure. We will have to wait and see whether he can grab enough tax revenue to cover the R171 billion that he added to the spending plans tabled in February this year. This increase goes to provision for inflation linked salary increases for the public sector (R59bn), allocation to new programmes and expanded spending on key programmes (R60bn) and of course Eskom’s capital expansion project (R60bn). Once government’s proposed social security fund is factored in, Manuel says total 3-year expenditure amounts to R2.4 trillion! This means the small budget surplus we’ve become accustomed to will be replaced by a deficit of 1.6% of GDP next year.
Manuel was fairly up-beat about the consumer price inflation outlook for the remainder of this year and 2009. He says the 13.6% August 2008 CPI measure was largely due to spiralling food and fuel prices and that oil’s decline to around $70 per barrel would cool things down. But he probably hadn’t factored in the ridiculous slide that the rand suffered in recent days. At R11 or worse to the US dollar we think the currency will place huge pressure on the cost side of government’s medium-term budget.
Pressures to the left; pressures to the right
Of course there are many non-economic pressures that Manuel must contend with too. He has to balance the needs of the country with the demands of the ruling party’s alliance partners. Manuel dismisses those who suggest the ANC will shift financial policies to appease the labour and communist factions in the party; but he might be fighting a losing battle. The South African Communist Party has become increasingly vocal with regards a need to review macroeconomic policy. They’re not happy with inflation targeting and cannot see the point of running a budget surplus.
Manuel has been at pains to point out that addressing problems of poverty require a consistent long-term approach. He said that bowing to pressure to stray from the existing policy would result in short-term gains; but sacrifice South Africa’s long-term prosperity. “Our policy decisions have sometimes been controversial. But if our economic policies were designed for their populist appeal, if we tried to finance everything, at once, for everybody, then short-term gains would quickly give way to long-term misery!”
During the question and answer section after his mini-Budget speech, Manuel deflected questions about the shift with his usual quirky humour. Quoting lines from a song in the popular 1975 musical comedy film, The Rocky Horror Picture Show, he sang: “Take a jump to the left, and then a step to the right… Let’s do the time warp again!” Perhaps those words hold a deeper meaning in the South African context today than when they were originally penned.
Making some worrying noises
How long will Manuel retain his position as minister of finance? We can take some solace from the fact that he was born in 1956 and has a few more years before retirement age… But we have to accept that he won’t be able to hold the position forever. Manuel commented in a recent radio interview that he’s been in the position for “a long time” and that he would discuss his future with his ‘bosses’.
In the interim we need to enjoy the financial foundation that Treasury and the Receiver of Revenue have carved out for us. They’ve done what they can to ensure that we weather the global economic storm that rages today. Manuel’s mini-Budget comment sums the situation perfectly: “We saw the signs early, and we took appropriate action. We can say to our people: Liduduma lidlule! The thunder will pass.” He assures us that the country’s finances are in order, banks sound and investment plans in place. South Africans will “ride out this storm, whatever it takes, together, on the strength of a vision and a plan of action that we share.”
Editor’s thoughts:
Trevor Manuel remains up-beat about prospects for the domestic economy. But the revised growth targets for 2008 and 2009 will make his task extremely tough. Do you think SARS will meet its 2008/2009 revenue targets? Add your comments below, or send them to gareth@fanews.co.za
