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South Africa can't afford to 'live
now, pay later'
This week,
Minister of Finance Trevor Manuel presented the annual national budget.
Except for the predictable professional ideological opposition from the
"left" and the right, everybody at home and abroad has acclaimed
the excellence of the budget.
The budget is driven by three objectives that are fundamental
to the strategic goals of our movement. These are:
- the eradication of poverty;
- the growth and development of our economy; and
- the construction of a people-centred society based on the principle
and practice of human solidarity.
In all the economic policy discussions that
took place within our movement during the 1990s, we recognised the fact
that democratic South Africa would inherit an economy characterised, in
part, by unfavourable macro-economic aggregates. One of these was the
budget deficit.
This deficit had increased rapidly during especially
the latter years of the apartheid regime, as this regime sought to buy
itself out of inevitable defeat. This it did with borrowed money, leaving
the burden to future generations to pay the interest and settle the debt
with the moneylenders.
As we advanced towards the day of liberation, we took
the decision that it would be incorrect further to increase this debt.
We recognised the importance of reducing it. This would ensure that we
do not end up with the situation that debt servicing becomes the main
expenditure item on the national budget rather than social and economic
development.
It was for this reason that both our policy documents,
"Ready to Govern" (RTG) and the "Reconstruction and Development
Programme" (RDP), called on us to address the issue of macro-economic
balances, including the budget deficit.
Our government has therefore acted as directed by these
two policy documents, specifically through GEAR. This has resulted in
the reduction of the budget deficit to 1,4% during the current financial
year. It will rise to 1,7% during the financial year 2004/05. The success
of GEAR in this regard has released the additional resources we need further
to advance the objective of a better life for all. Let us cite what the
Minister of Finance said in this regard:
"Prudent financial management has resulted in lower
interest costs thereby releasing some R10 billion of additional resources
for spending on services over the next three years. Debt service costs
are expected to fall from 4,8% of GDP in 2001/02 to 4.4% next year and
4,1% by 2004/05. What this means is that whereas in 1998/99 we were spending
20.2% of our budget on interest costs, for 2002/03 this comes down to
15.7% and is expected to fall below 15% by 2004/05. This is clearly a
policy choice that has started to pay dividends."
The adoption of GEAR by our organisation and government
caused a persisting controversy within the broad democratic movement,
despite the policy decisions reflected in both the RTG and RDP documents.
The strategy to finance our development with our own resources rather
than depend on borrowed money was denounced as "neo-liberal"
and a betrayal of the revolution to the so-called "Washington consensus".
The "left" wanted us further to increase the
debt burden that we had inherited from the apartheid system on the basis
of the principle - live now, pay later! It wanted us to follow the example
of Zimbabwe which, since independence in 1980, financed its social and
economic development on the basis of a large budget deficit, financed
by unsustainable domestic and foreign borrowing.
There is no gainsaying the fact that independent Zimbabwe
made a lot of progress with regard to many areas. These include education,
health and rural development, which are areas of investment that are critical
to the reconstruction and development of Zimbabwe. It is obviously true
that had the government of Zimbabwe not accessed the borrowed resources,
there would have been much less available to spend on the development
areas we have mentioned.
However, the problem with all debts is that interest
has to be paid to the lender. In the end, the debt as a whole must be
paid. As all of us will know, the money lenders give out their loans with
a smile and treat falling into arrears in servicing the loan with stern
hostility. Thus, sooner or later, Zimbabwe had also to meet its debt obligations.
Regrettably it defaulted, simply because many years of economic decline
had resulted in the unavailability of resources to finance the accumulated
debt.
All this has resulted in a situation that no government
in Zimbabwe can avoid. Inevitably, as recognised by the government of
Zimbabwe, various items of public expenditure will have to be reduced
significantly because they have become unaffordable. These will include
the civil service, food and other subsidies, education and health. The
very size of the accumulated debt has necessitated the reduction of the
very services for which the money was borrowed.
We, for our part, did not take the route urged by some
within the broad democratic movement, and followed by Zimbabwe, to live
now and pay later. Rather, we took the opposite direction to get out of
debt, so that what we save is directed at the social and economic upliftment,
which Zimbabwe financed with borrowed money, but which we will finance
with our own resources.
This has created the situation that we will not be faced
with the danger in future that the provision of public goods and services
becomes unaffordable because we would have got caught in a debt trap.
Accordingly, we have to continue to maintain our stance with regard to
the macro-economic balances in our economy.
We should also note that even as we were reducing the
budget deficit, contrary to the falsehoods told by our "left"
professional critics, we continuously increased social spending, specifically
to respond to the perspectives spelt out in both the RTG and the RDP documents.
As reported by the Minister of Finance during his budget
speech, the government will continue to maintain this stance into the
future. Clearly, given the larger resources we are able to generate, we
will be able to move forward faster than we could have done up to now.
What has to be done is indicated in the Budget Review 2002, which, among
other things says:
"Sustainable growth and development are necessary
to achieve a progressive reduction in poverty and a bridging of the gap
between rich and poor. Growth depends crucially on the maintenance of
a sound macroeconomic and fiscal stance, and improved investment in human
development and physical infrastructure.
"Growth and poverty reduction are promoted through
enhanced partnerships, with civil society and the private sector, and
with continental and international partners within the framework set out
in the New Partnership for Africa's Development.
"Over the next three years, fiscal policy will
support these objectives by increasing the resources available for programmes
that contribute towards poverty alleviation, skills development, infrastructure
expansion and job creation, while strengthening Government's capacity
to lead the development process."
Our 2002/03 Budget is focused on all the matters we
have just cited, as mentioned in the Budget Review.
With regard to the issue of poverty, further increases
in expenditure are provided for with regard to social security grants
and welfare services. This includes pension and other social security
grants, as well as the child support grant.
In addition, the Budget Review states that: "Allocations
to national departments include R1, 5 billion in 2002/03 and in 2003/04
for poverty relief and income generating projects targeted towards the
most vulnerable groups in society - the rural poor, women, youth and disabled."
The Review goes on to say: "The (poverty relief)
programme, conceived initially as a short-term intervention in 1998, will
be comprehensively reviewed in 2002. Where projects have contributed to
the core functions of the department, or have illustrated their usefulness
in relieving poverty and are sustainable, allocations will become part
of ongoing departmental budgets. Unallocated resources will be reprioritised
toward other programmes that are targeted at poverty alleviation or sustainable
job creation, focusing particularly on rural and urban development challenges."
Further to contribute to the improvement of the standard
of living of the low and middle-income earners, the budget introduced
significant tax reductions in these income brackets.
The budget demonstrates in a very practical way the
determination of our government to push back the frontiers of poverty
and expand access to a better life. This work will continue.
The government also recognises the fact that, fundamentally,
economic growth and development must drive the offensive against poverty
and underdevelopment. The budget also contributes to the realisation of
these goals.
This contribution includes increased public sector investment
in the social and economic infrastructure with particular emphasis on
urban and rural development and the municipalities, tax exemptions to
encourage saving to increase domestic capital formation, acceleration
of depreciation allowances for manufacturing plant and further tax and
administrative relief for small business.
It includes intensification of our work to improve the
skills levels in our economy and society, additional tax allowances for
learnerships offered by employers, increasing access to productive land
and implementation of decisions taken last year to provide incentives
to business to encourage job creation and improvements in the competitiveness
of our economy.
Of course, the government will also continue with the
implementation of the economic initiatives introduced before, especially
during the year 2001.
Further to increase mass involvement in the process
of reconstruction and development, to encourage partnership and human
solidarity, to give further impetus to the letsema programme, the budget
provides for a further expansion of civil society organisations and activities
that can benefit from a tax-exempt status and tax-deductible donations.
As the Finance Minister said, "underlying this
list of tax-privileged activities is the principle that these must promote
social development or meet special needs of the wider public, and not
just a narrowly exclusive group". In addition, government will continue
to make resources available to the CBOs and NGOs through the National
Development Agency (NDA).
All these and other measures which, among other things,
will further expand our housing, water and sanitation, food security,
electrification, health, education, roads and other programmes, are all
part of our sustained work to meet the challenge of providing a better
life for all our people.
It is critically important that we inform our people
about the work being done by the government they elected. We should also
continue to work among them to mobilise them to utilise the resources
and opportunities opened up by government themselves to participate in
their millions in the letsema volunteer campaign for social change.
The Minister of Finance concluded his budget speech
with these words from the late Chief A.J. Luthuli: "There remains
before us the building of a new land.from the ruins of the old narrow
groups, a synthesis of the rich cultural strains which we have inherited.The
task is immense."
By our practical deeds, regardless of what the professional
critics say, we are building our land anew. A new army of heroes and heroines
has and is emerging. These are the millions of our people who see themselves
and act as the new builders.
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