Stals endorses Manuel's course
FINANCE Minister Trevor Manuel's Budget has received the thumbs up from the Reserve Bank. Governor Chris Stals said in Parliament on Friday that the Budget placed the Bank in a better position to look at easing monetary policy and dismantling the remaining exchange control regulations.
He said that from a monetary policy point of view, the deficit target of 3.5% of GDP was "the most important aggregate" in the Budget.
Stals confirmed that Manuel's 3% GDP growth and 6% inflation forecasts for the 1998/99 fiscal year, considered by some critics to be unrealistic, were in line with Bank forecasts. He warned, however, that the current account deficit could almost double in 1998 to R15-billion from R8.8-billion last year.
Meanwhile, Manuel said on Friday that he was looking at ways to change the Bank's structure in order to allow government to set inflation-based targets. "There has been the tendency in the past that bands and targets have been set by the Bank and we seek to change that," Manuel told Parliament's finance committee. "This is something we are in discussion with the Reserve Bank about."
He said the arrangement whereby the Bank's board of governors delegated the power to manage monetary policy to the governor and his deputy would change with the launch of the new market-based repurchase rate system.
Manuel's Budget has gained broad acceptance, apart from the traditional outcries from opposition parties and labour.
In an interview, he said that, on the revenue side, criticism that government was siding with a certain constituency was wrong. "Revenue initiatives are consistent with our policy objectives . . . . What we are doing is also entirely in line with the first Katz tax proposals which stressed the need for equity and a level playing field."
Commenting on what he called "the unpopular choice" of taxing retirement funds, Manuel said the Budget only dealt with interest and rental earnings of retirement funds. He made no excuses for his decision, saying there was a tax advantage for retirement funds that was not offered for other savings.
He believed it was significant that the Budget addressed bracket creep, putting R3.7billion into the pockets of working people.
Criticised for his optimistic view of economic growth in the next year, as well as for job creation targets set out in his Gear strategy, Manuel said that at the time Gear was drafted, the balance of payments constraint was severe and the rand was in free fall.
Now that inflation is coming down, SA's export performance is proceeding apace.
"The course we are pursuing will kick in, maybe not with the speed or alacrity we would all want, but the fact that we are on the trajectory for economic transformation that will be lasting cannot be disputed."
ý See pages 2, 12, 13 and 14 for more Budget coverage