Trevor Manuel is fond of quoting Steve Tshwete saying: "I will not praise a fish for swimming." With Manuel at the helm, we have come to expect a job well done - and rightly so. With his excellent management, the minister has raised the stakes. He has brought the treasury a long way from using hand-held calculators. We now have a well-run department with sophisticated systems.
Simply collecting revenue well and using the money prudently is the minimum we expect from the treasury. But true excellence would be budget projections that are accurate (or at least closer to reality). We have become accustomed to budget deficits as a percentage of gross domestic product (GDP) that are a half or a third of what was originally projected.
It is time to up the game and to start getting it right.
A budgeting process that is consistently inaccurate frustrates the ability to project growth forecasts which government has highlighted as a central focus with the Accelerated & Shared Growth Initiative for SA (Asgisa).
In fact, as the treasury has become more experienced and systems have become more sophisticated, the difference between the projected deficit and the actual deficit has widened. Given growing inequalities in the country and the dire need for development, having R41bn in cash sitting in a money market account is embarrassing. We need to move from rubbing our hands in glee when admiring the cash pile, or cheering enthusiastically as the gallery did today, to being dismayed that another year has passed without achieving our development goals.
As a further slap in the face for the poor, the minister once again allowed the bulk of the revenue windfall to be enjoyed by those fortunate enough to have jobs. The increases to pensioners and child grant beneficiaries will cost the fiscus R4bn while income tax cuts will give R13,5bn back to lower-, middle- and upper-income earners.
Furthermore, SA's income tax rates are the same as or lower than those in developed countries with large social safety nets, such as the UK, Canada and Australia. Are we not prepared to pay higher taxes so as to live in a country where all children are given access to equal, high-quality education and people are allowed a certain decent basic standard of living?
The other area of disappointment was the negligible move on exchange controls. Individuals are now allowed to take up to R2m offshore, up from R750 000, but no further concessions were made for institutional funds.
With its continued reluctance to move boldly on exchange controls, it seems that government has an unwarranted nervousness about rand volatility. The volatility and level of the currency is the number one "binding constraint" of the Asgisa background document.
This is simply incorrect. The rand is not volatile. The currency has traded in a 10% range around R7,50 and R8 to the euro since early 2004 - a two-year period of stability.
Against the US dollar the range has been slightly wider but then the dollar has driven a lot of that volatility. At worst it has been around R5,70 (briefly) and R6,70 over a two-year period. This does not warrant putting it at the top of the list of "binding constraints".
In fact, simply talking about the currency can lead to increased volatility. The best we can do is leave it alone.
If it is the level of the rand that is of concern to people, we need to be careful what we wish for. The resilience of the economy and the stability of prices in the face of the oil and maize price spikes we saw in the past months are attributable to the relatively strong level of the rand.
The Reserve Bank would have been hard-pressed to ignore these exogenous factors and keep interest rates on hold if the rand had been weaker. A relatively stable rand, which is allowed to find its own level, is key to foreign investor decision-making.
Last year a record US$15bn flowed into emerging market funds. If SA would like to benefit from the favourable sentiment towards emerging markets by foreign investors we should not be encouraging volatility and weakness, as this is sure to scare them off. Besides, the economy is hardly showing signs of wilting under a strong currency. Over the past two years under the strong rand, the economy has gone from being a 3%/year GDP growth economy to almost 5%.
Mining companies are making substantial profits (significantly more than they did when the rand was weak), manufacturing for 2005 expanded by 3,5% and SA's international credit rating was again revised upward. These are not signs of an economy burdened by an overly strong exchange rate.
Though the budget was good news for low-, middle- and upper-income earners in the form of income tax cuts, retirement fund tax cuts and the removal of transfer duties on homes under R500 000, it failed the poorest of the poor.
The move towards a more conservative fiscal policy stance with budget projections being reduced from a 3% level to around 1% is particularly worrying, especially given the goal of an accelerated growth environment.
Réjane Woodroffe is economist and portfolio manager at Metropolitan Asset Managers
