indwe magazine – April 2005

The Budget
Text & Image: Shun Govender
If you had to vote for your favourite cabinet minister who would that be? Guesses are that Trevor Manual would easily top the list. People from all walks of life would not only vote for him as their favourite politician, but also that he stays on as South Africa’s Minister of Finance. Why?
Budget Day is an important occasion in the calendar of parliament and the country. For obvious reasons too; when government talks about taxes (revenue) and spending (expenditure), you and I and everyone else will surely want to know how this is going to affect our pockets or balance sheets. But when he delivers his Annual Budget Speech, Trevor adds a personal touch of flair and winsomeness to the occasion, making the most important and interesting Speech after the State of the Nation address. Articulate, engaging, clever, inclusive and sensitive – these are some of the qualities that come easily to mind to describe his public profile. The seeming ease with which he conducts the financial affairs of government and his invitation to the public to send in their ‘Tips for Trevor’, breed an air of familiarity, such that we want to refer to him by his first name.
But surely, his personal charm is not the only or most important reason for his popularity as finance minister. The fact of the matter is that the presentation of the national Budget gives us a window to view government’s thinking, planning and acting, especially the way it plans to raise and spend money over the next fiscal year.
The Budget grabs everyone’s attention for different reasons. The business and investment communities listen carefully. They want to see whether government will announce further tax relief for companies and other business incentives, whether there will be a further easing of the regulatory and exchange control environments that make doing business in South Africa profitable. This year they were encouraged again with the announcement of a further drop in company tax, from 30 to 29 percent. They may not have received all they asked for, like the dropping of the secondary tax on companies, but by and large they agree that it is going in the right direction.
So too, no one begrudges Trevor the relief he has consistently announced over the years for the poor and unemployed. The unacceptably high levels of poverty, income inequality and joblessness threaten the well- being and daily lives of millions of South Africans, and threaten the social and economic fabric. Even though we are not a welfare state in the strict sense of the word, a major portion of the national budget is spent on some or other form of social assistance and relief to benefit poor people, as illustrated in the chart below.
Such assistance takes the form of direct cash transfers through pensions, disability, foster care and child support grants. A significant portion of the budget goes to allocations for education, health and employment creation initiatives such as the Expanded Public Works Programmes. Money is given to local municipalities to provide some free basic services such as water and electricity to poor communities.
The Budget is a Balancing Act
Helping the poor with direct assistance, however, is not a long term sustainable option, necessary as this may be. The economy of the country must grow and create jobs for people to become gainfully employed through the formal and informal economies. The Budget makes provision to promote economic activity; this takes the form of government spending on capital projects to develop infrastructure like roads, port and harbour facilities, schools and clinics as well as investments in human skills development. This is investing in the future. The budget thus tries to find a balance between assisting poor folk directly with money while also providing an enabling environment for economic growth.
Success Factors
Quite clearly, the finances of the country are carefully managed, and the Minister of Finance must take a large chunk of the credit for transforming the process. We have not seen wild and uncontrolled government spending. Prudent fiscal policies since 1994 have led to economic stability at the macro level. The National Treasury under the Minister’s control has not hesitated to use the law to intervene in the financial affairs of provinces and municipalities where mismanagement occurs, but also to get government agencies and departments to spend all of their allocated funds.
There are good institutional structures and processes in place. We now have a three-year budget revenue and expenditure plan based on strategic plans and performance measures, instead of the old secretive one-year incremental budgets. In fact three months before Budget Day, government publishes budget amounts (in a document called the Medium Term Budget Policy Statement) and invites public comment and debate to influence the budget. This creates a measure of confidence for government departments and business to do forward planning.
Where does the money come from? From us, from business and from some borrowing locally and overseas. Government raises its revenue through taxes: personal income tax, value added tax, company tax, and borrowing from the market to meet its budget deficit. As the economy grows and more and more people pay their taxes, the South African Revenue Services (SARS) has, for the last six to seven years, been able to collect more taxes than government had anticipated and planned for. This comes as good news to us when the Minister of Finances gives some of the extra revenue back to people and companies in the form of tax relief.
Anyone can follow the different aspects of the budget process by tapping into the National Treasury’s website where a wealth of financial and budget information is readily and freely available. (www.treasury.gov.za).
Who knows, you may even be tempted to write a tip or two to Trevor.
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