Manuel has a rare talent: he thinks around corners. Unlike many politicians, he understands the law of unintended consequences - a gift that has reversed SA's economic fortunes.
But in March 1996, when he promised to tax SA "smarter not harder", few paid attention. The ANC's earlier commitment to nationalisation was still a recent memory; and Manuel, former activist and newly appointed finance minister, had just dropped a clanger. He had sent the financial markets into a tailspin by referring to them dismissively as "amorphous". So the commitment to a better tax policy was drowned in a chorus of scepticism.
So too was the five-year Growth, Employment & Redistribution (Gear) framework, published in June 1996. Manuel targeted lower government consumption , a lower deficit, reduced government dissaving and lower inflation. It sent a clear message: sorry, folks, it's jam tomorrow. But that message, too, was largely ignored.
Today it's heard loud and clear. And it took a lot less than 10 years for him to prove his point. Even before his first budget in 1997, a rising rand reflected the market's confidence that he would meet the deficit target - 5,1% of GDP - set in the previous budget by his predecessor Chris Liebenberg.
In the event, the deficit between revenue and expenditure came in at only 3,8% of GDP, the first in a series of deficit reductions (see graph below) over the past 10 years.
They were achieved by disciplined expenditure, careful financial management and a drive to broaden the tax base that produced a series of impressive revenue overruns. These totalled nearly R63,9bn by 2005, with a further R35bn odd to follow in the current fiscal year (see graph).
The structural change in budget finances, along with the reforms to tax administration, which broadened the tax base, set the scene for effective tax cuts. Brait economist Colen Garrow puts the value of tax relief at R68,7bn between 1997 and 2005 .
The relief has come in many forms. The standard corporate tax rate is down from 40% to 29%, though the proportion that corporate taxes contribute to the total tax take is up from about 12% to 20%. Top marginal tax for individuals is down from 45% to 40%, tax rebates substantially higher and the bracket structure flattened, which reduces the personal tax burden .
So Manuel achieved a hat trick: lower taxes, revenue overruns and a smaller deficit. Soon his success was reflected in global financial markets, where SA's risk premium started falling as early as 1997 and, with it, the cost of SA's foreign borrowing.
But it was inevitable that, in 1996, the country's first ANC finance minister would have an image problem within the business community. His two immediate predecessors had been businessmen, co-opted by the ANC to restore some order to the fiscal chaos created by National Party politicians.
Manuel emerged as a political activist in 1969, and was a leader of the United Democratic Front in the 1980s and chief of the ANC's economic planning division in the early 1990s, when its avowed policy was nationalisation. In 1996, many saw him as a socialist.
Moreover, the job came with the legacy of financial mismanagement and rapidly mounting debt. Apartheid came at a huge cost to SA. For decades, resources flowed into the subsidisation of imaginary "homelands" and the massive security apparatus needed to maintain the minority government.
There were the opportunity costs of a policy that disadvantaged the majority of the population: the lost productivity and the disruption inflicted on the economy by resistance to government. There were the costs of a pariah status: lost export opportunities and the premium attached to raising finance in a hostile global environment. And, finally, there was the cost of a gravy train that flourished in a society where government was unaccountable .
As a result, the government of P W Botha had been "dissaving" since about 1982 - in other words, government was spending borrowed money on current consumption instead of on capital projects. Dissaving rose from breakeven in 1982 to R23bn in the 1993 fiscal year. And government debt was rising exponentially. If that were not enough, the integration and rationalisation of the corrupt former homeland administrations after 1994 brought additional debt onto SA's balance sheet.
By 1996, government's debt was close to 50% of GDP and SA was close to a debt trap, a situation that arises when governments have to borrow to pay the interest on existing debt. When Manuel took over the finance ministry, interest costs amounted to more than 20% of total government expenditure.
So expectations were that the new ANC government would be forced to continue in the same tradition as the old NP government. Even those who believed in Manuel's commitment to sound fiscal policy doubted that it could be implemented.
How did he fulfil his promises against all expectations?
One of the secrets of his success is his ability to learn from, and work with, other people. Tax consultant Pierre du Toit says Manuel showed a "capacity to listen carefully and actively to those he asked for input". In his book Manuel, Markets and Money, Du Toit writes: " Manuel proved a master at holding together a team and making the most of what they had to offer."
Maria Ramos, his director-general up to 2003 and now head of Transnet, was among those whose talents contributed to the success of the department. Her financial and management skills were a great asset at a time when SA was re-entering the global financial arena.
Having formulated a long-term strategy, Manuel and Ramos systematically reformed fiscal policy, tax legislation and tax administration - a process that transformed SA's economic prospects.
By cutting government spending and reducing state borrowing, Manuel brought inflation structurally lower. This left scope for lower interest rates; the prime rate has fallen from more than 20% at the end of 1995 to 10,5% now. And lower interest rates, which stimulate capital investment and consumption spending, are now powering the economy into 5% growth territory.
Tomorrow has arrived and . . . there's jam on the table, folks!
