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Stals endorses Manuel's cours... Foreign account deficit drains reserve... Exchange control grip loosen... Easier now to buy property in Londo... Big shift to social spending belies unio... Manuel gives, and grabs, as he two-step... Government averts looming debt spira... Bank defends itself in face of 'lifeboat... |
Manuel gives, and grabs, as he two-steps for election
The government's commitment to continued fiscal discipline has been received well, writes MARCIA KLEIN
At the same time, the demutualisation of Old Mutual and Sanlam, which spreads huge amounts of money into the economy and will make a wide spectrum of voting individuals prosperous, has been said to be the biggest pre-election gift the ANC could ever have wished for. It seems strange therefore that the only real surprises in Finance Minister Trevor Manuel's Budget - a 2.5% levy on the free reserves of the two mutuals and a rise in tax on retirement funds to 25% from 17% - picked out the insurance industry as the target for extricating much-needed additional revenue in order to meet the targeted 3.5% budget deficit.
As usual and in line with tradition, all opposition parties and other stakeholders, including Cosatu, have voiced their disapproval. Cosatu said this week inconsistencies in the Budget "are in large part a product of chasing the magic deficit reduction figures of the growth, equity and redistribution strategy (Gear)". But the Budget, and government's commitment to fiscal discipline, was generally well received. Transparency with regard to its fiscal planning has meant that most aspects of the Budget were not unexpected. It is based on the ambitious target of 3% economic growth in the next fiscal year, but takes into account a lower inflationary environment than was expected when government released its medium term expenditure framework last year. Manuel announced a targeted 3.5% deficit for 1998/99 and an expected deficit of 3% in the following two years. The budget deficit was 4.3% last fiscal year, slightly higher than budget but in the right direction. The Budget, for the first time reflecting both short- and long-term decisions and presented in the framework of the new constitution, shows expected revenue of R177.6-billion in 1998/99, equivalent to 26.5% of gross domestic product and unchanged on last year. Expenditure of R201-billion is expected, an increase of 6.4% over last year. After state debt, spending will be R159-billion, of which 60% is allocated to social services. About 12% or R19-billion goes to welfare and social grants, 14% or R23-billion is allocated to health services, 28% or over R45-billion to education and R3.5-billion to housing. These reflect a commitment to increase social spending. Provinces receive an equitable share of R79.1-billion and conditional grants, raising the provincial allocation to over R90-billion. The Eastern Cape will receive R15-billion, Gauteng R14.1-billion, KwaZulu-Natal R17.6-billion, Northern Province R11.1-billion and Western Cape R9.5-billion. The Budget provides tax relief to low- and middle-income earners, who will benefit to the tune of R3.7-billion. At the other end of the income spectrum, individuals with spare cash are now permitted to take more money offshore. As a further relaxation in exchange controls, the limit for individuals has been increased to R400 000 from R200 000. Those with policies at Old Mutual and Sanlam face a 2.5% charge on the free reserves of the two groups on demutualisation. As usual, smokers and drinkers suffer. Excise duties on tobacco are up 46c for a packet of 20 cigarettes. SA's 50% tax on tobacco products compares with 52.1% in Asia, 28.5% in the Middle East, 47.4% in North America and 42.5% in Africa. Because of the price differential with other African countries, contraband and smuggling have become a big problem. This means it is unlikely cigarette tax will be raised higher than 50%. It will cost 1.6c more for a can of beer, 65.7c more per 750ml of cane spirits, and 48.2c more for grain spirits. Unfortified wine goes up by 5.9c per 750ml.
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The mutuals, who were apparently given no prior warning, have grudgingly accepted the 2.5% levy, even though there is no precedent. They are clearly upset about the increased tax on retirement funds.