The 2008 budget was a proud staking out of territory by the ANC's right flank. It was full of warnings of the risks of fiscal profligacy, self-congratulation for the wisdom of prudence and positive signals to business.
On the surface it met the policy declarations made by the party in Polokwane, but was not a hearty endorsement. It continued the steady growth in social grant provision, but on its own terms.
Finance minister Trevor Manuel highlighted, like a stern lecturer, the changed global economic picture and the risks of recession in the US. It was a warning growl to the fiscal expansionists allied to ANC president Jacob Zuma. Economic policy reviews mooted by those in the Zuma camp - of the inflation-targeting regime and the practice of running the budget surplus - were given short shrift. Instead, Manuel reinforced those policy choices: "The prudent fiscal stance, international reserves of US$33,6bn, the inflation-targeting regime and a floating exchange rate... we took these decisions early and we implemented them when times were good. We took them in the face of some severe criticism, even in this house."
That imperviousness to criticism confirms Manuel's strength in the new political climate. The Zuma camp need him more than he needs them. And there won't be any bending to the prevailing political winds. The economic storm can now be weathered, growth prospects better protected and the lives of South Africans improved "sustainably", thanks to an iconoclastic finance minister not afraid to make unpopular decisions, or to lose his job. Plus he holds the confidence of the local and global community.
Manuel pointed to the importance of that confidence: R3bn of net portfolio inflows is required each week to finance the current account deficit created by imports needed for SA's various infrastructure projects. As if that weren't enough, his surprising relaxation of the exchange controls on domestic institutions will expand the policing role of the financial markets - it will now be much easier for domestic capital to take flight, along with foreign portfolio capital.
But much of this staking out of territory was rhetorical. The actual mechanisms of the budget were as steadily expansionary as they always have been. Tax relief was welcome but not as dramatic as it may at first seem: the tax cuts to individuals serve largely to eliminate fiscal drag caused by inflation pushing people into higher tax brackets. The one percentage point cut in the corporate tax rate to 28% will effectively become just a 0,25% percentage point cut once the switch to a dividend withholding tax takes place. The small business efficiencies and incentives announced will really only make a difference to the lives of very small businesses.
Social spending is growing, in line with medium-term estimates. An extra R12bn will be added to social expenditure over the next three years; R75,3bn will be spent next year - more than the amount spent on health, and not far off that spent on education. Now 12,4m South Africans are on welfare, though the growth appears to be flattening. Social grants have all been increased, but largely in line with inflation.
There is little doubt, though, that tension exists between the realities confronting national treasury and the ANC's policies adopted in Polokwane. In line with those resolutions, the retirement age for men will be reduced to 60, but only by 2010. Yet, in the Budget review, treasury points to rising life expectancies and the need to increase the retirement age thereafter. That is an international phenomenon and elsewhere governments are grappling with how to increase mandatory retirement ages - always politically unpopular. If sex equality was the point, it would be far more logical to gradually increase the retirement age of women. Instead, government is setting itself up for an even more uncomfortable problem down the road when everyone's retirement age will have to be increased.
Treasury has dragged its heels in other ways: Polokwane decided the child support grant should go to children under 18, but the budget increased the age to 15 from 14. It's a politically defensible move in the right direction, but hardly an enthusiastic one.
Instead, job creation and social upliftment will occur through the infrastructure push, helped by Transnet, Eskom and the cities. This has the potential to be money well spent: investment that can generate its own returns, rather than black-hole spending. That is the right way to get a bang for the taxpayers' buck. Manuel's steadfast commitment to that end gets our ringing endorsement.
Ranking the Analysts 2009
