by Munetsi Madakufamba
South African Finance Minister. Chris Liebenberg unveiled before parliament the 1996/97 budget promising a rigorous fiscal policy aimed at reducing the budget deficit and an overhaul of the tax system.
Liebenberg must have had few problems, if any,in the functional breakdown of the estimated R173.7 billion total expenditure level for the 1996/97 fiscal year, representing an increase of 10.4% on the revised estimate for 1995/96. Against the background of a robust and buoyant economy whose current growth rate is 3.5%, a single-digit rate of inflation at 8.7%, its lowest since 1972, and with the revised budget deficit for last year down to 6.0% of Gross Domestic Product (GDP), a projected growth rate of between 3.5% and 4% should be easily attainable.
However, as targeted within the framework of the Reconstruction and Development Programme (RDP). The economy needs a growth rate of 6% to redress the apartheid imbalances and cater for 500 000 new jobs a year. A review of the past year shows that the economy managed to create only 55 000 jobs in the non-agriculture formal sector, confirming that job creation is South Africa’s biggest challenge.
The minister made a bold move towards a balanced budget by targeting a deficit of 5.1% of GDP. With the total projected expenditure and revenue estimated at R144.9 billion, the budget deficit comes to R28.8 billion and the government plans to finance this primarily from domestic credit, hopefully without crowding out the private sector.
The government lived up to its promise of reprioritising social services through the RDP Fund, which got a separate vote of R7.5 billion from the current budget, taking the total to R15 billion to date. Social services in education, housing, health, job creation and general welfare have been taking the biggest slice of the cake so far.
On the departmental allocations in various ministries, education, health, police and water affairs. among others, had their allocations increased whilst defence and trade and industry and housing had theirs slashed. Although these ministries’ provisions were reduced they are still cushioned by roll-overs from the previous year. For example.
Housing was reduced from the revised estimate of R4.0 billion in 1995/96 to R1.5 billion in 1996/97 but has roll-overs from the RDP Fund and the National Housing Fund bringing the total available funds to R4.6 billion.
Notable in the 1996/97 budget are the tax reforms that seem to favour the lower income earners in the country as well as foreign investors.
The Finance Minister has done a laudable job, from the consumer’s point of view to leave VAT untouched although a possible increase is on the cards for the coming financial year. However. consumers, as long as they drink, smoke or drive have not been so lucky as all sin taxes as well as 73c/kg. Fuel levy has been adjusted to 3c per litre of both leaded and unleaded petrol, including diesel, effective 3 April 1996.
Labour unions have something to smile about as the tax burden is going to be reduced by raising the minimum tax threshold from R14 600 to R15 580 and the top bracket from R80 000 to RIOO000 among other changes. The minister has decided to boost his revenue by eating into the retirement fund and as an initial step this has been set at 17% of the monthly gross interest and net rental income on pension, provident and retirement annuity funds. Secondary tax on companies and marketable securities have been halved from 25% to 12.5%
and 1% to 0.5% respectively, a move that is likely to attract more foreign investment.
Liebenberg proposes to compensate the loss in tax revenue due to these reforms by pledging a more efficient tax collection, the restructuring of Inland Revenue and Customs and Excise as well as the launch of a South Africa Revenue Service (SARS).
South Africans can rightly agree with the Minister when he says, “This Budget will not please everyone: budgets never do.” Other SADC states would have more to disagree than agree with the minister because they feel more could have been done through the budgetary reforms to foster regional development.
The mention of a move to phase out high import tariffs to improve competitiveness comes as some sort of relief to the region. So is the news that the General Export Incentive Scheme (GElS) is going to be scrapped at the end of 1997. The GElS is at the centre of controversy over unfair trade practices between South Africa and its neighbours as it artificially keeps prices of South African products too low to compete with those from other countries. Many industries in the region have already succumbed to this artificial lowering of prices, which is tantamount to dumping of goods. That the GElS is going to be lifted at the end of 1997 is a meagre effort as this is a period long enough to cause serious de-industrialisation and thus cripple most of the economies in the region.
Probably the news that has been awaited, and impatiently, would have been the removal of the 125% deposit duty on all goods in transit (through South Africa), yet the budget has missed this. Whilst South Africa thinks so much about protecting its economy from illicit trade than anything, regional traders who want to use the route for genuine business motives think otherwise and see this as exacerbating their financial woes.
It will be a long time before South Africa opens its borders to free trade with neighbouring countries as long as some industrialists in the country still remain sceptical about trade relations with the region. Commenting on the budget’s role in upgrading customs posts, Hermie van Zyl of the Clothing Federation of South Africa says the government should employ measures that” … address dubious trade relations within Southern Africa that allowed for smuggling.”
The rand has been stable in the post-apartheid period except for a few shocks as a result of unfounded rumours over President Mandela’s health. The Reserve Bank of South Africa is set to intervene to protect the rand from plunging and the region whose currencies have been fairing weakly against it, will find it difficult to trade with the country.
On a more positive side, Liebenberg announced stiffer measures at the customs and excise department that will see the installation of sophisticated electronic scanners and mechanical sniffers to thwart smugglers particularly drug traffickers. This probably comes in the wake of the joint SADC/EU conference on drugs held in South Africa late last year. The conference singled out South Africa as a major entry point to many known syndicates and the decision to upgrade facilities at its customs posts should help serve the region from drug trafficking.
Southern African states hope and believe South Africa still has the potential to do more to facilitate regional trade and development. This is the only way Liebenberg’s budget speech can become a reality when he says, “…South Africa is increasingly playing a more meaningful role, mindful of the need for cooperation to promote growth and development in the region.” (SARDC)
