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Manuel sets tough Budget of R186bn
The government has shown it is serious about fiscal discipline by planning a real cut in spending, writes SVEN LUNSCHE
Documents with Business Times show the spending figure was approved at a Cabinet meeting last month. It signals Finance Minister Trevor Manuel's determination to put the country on the road to financial discipline. If Manuel can resist the inevitable demands by state departments and provinces for increased allocations, the 1997/98 Budget will result in a spending cut of at least 2% in real terms - that is after inflation, which is expected to average 9% next year. State expenditure is on track to meet its budgeted target of R173,7-billion in the current fiscal year. The sharp cuts in state spending are essential if Manuel is to meet the Budget deficit targets set out in his Growth, Employment and Redistribution plan. Achieving these targets is rapidly becoming the yardstick of the government's willingness and ability to implement the ambitious strategy, which has raised the anger of factions in the ANC-Cosatu-SACP alliance. For 1997/98, government has set a deficit target of 4% of GDP, a marked decline from this year's budgeted 5,1%. At a spending level of R185,5-billion, the 4% deficit target will require government to raise about R160-billion in taxes and duties in 1997/98, an increase of 10,4% on this year's budgeted figure of R144,9-billion. Maria Ramos, the director-general of finance, did not confirm the 1997/98 Budget figures but indicated real spending cuts were necessary to achieve the proclaimed deficit targets. "We are committed to the 4% deficit target and to implementing structural reforms in government to achieve it," Ramos said. She said the government was not looking at increasing VAT to achieve the revenue targets, but was relying on "much-improved" revenue collection. Economists have warned that this week's hike in interest rates could have a severe impact on state tax income as it could slow economic growth from about 2,5% to 2% next year. This view is not shared by Ramos who said the rate increase would calm financial markets but not adversely affect next year's growth rate. She said the slowdown in domestic consumer spending should be offset by an improvement in the balance of payments. According to the documents, the R185,5-billion expenditure budget includes a contingency reserve of R1-billion and an unallocated reserve of R2,4-billion. They would be used to finance national disasters and "unmanageable" expenditure in the provinces respectively. Nedcor economist Denis Dykes said the cuts in spending scheduled for 1997/98 would require speedy implementation of planned retrenchments in the civil service. The government had previously announced that about 100 000 jobs could be cut in 1997 but Dykes noted this process had not yet been started. The document states that just over R3-billion would be allocated to new salary improvements in 1997/98. Voluntary severance packages would be terminated by March next year and no extra provisions allowed for retrenchment costs or severance packages. Further pressure on expenditure will emanate from South Africa's rising debt servicing bill. Manuel said earlier this week that the government would have to spend R41-billion on interest payments in fiscal 1997/98. He warned that government debt could become the largest single Budget item if it was not kept in check. On a positive note, the government will receive the first tranche of privatisation proceeds in March next year. The sale of 30% of Telkom could raise about R6-billion and more could follow with the unexpected acceleration of the privatisation programme over the past few weeks. Ramos said privatisation proceeds would not be included in the overall Budget and would be used only to finance capital spending.
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