ANC Today

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Volume 6, No. 6 , 17-23 February 2006

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THIS WEEK:

* Letter from the President: The Budget and our Age of Hope 
* Elections 2006: Support the plan to make local government work better 

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LETTER FROM THE PRESIDENT

The Budget and our Age of Hope

On Wednesday 15 February, our Minister of Finance, Trevor Manuel, presented the
2006-2007 Budget to the National Assembly and the country. All our people looked
forward to this important annual statement of government with great expectation.

Naturally they were very keen to hear what resources would be committed to
address the objective we have set ourselves - to accelerate our advance towards
the achievement of the goal of a better life for all. They were interested to
see whether this year's Budget would measure up to their confidence in, and
optimism about a better tomorrow for our country and for themselves.

Immediately after the presentation of the Budget, the Reuters news agency
reported that, "South Africa's economy is set to sustain growth at its fastest
pace in more than 20 years, with surging revenues allowing the government to
hand out hefty tax cuts for individuals and small businesses in fiscal 2006/07."
The British Broadcasting Corporation (BBC) said "South Africa is slashing
personal and small business taxes in the latest stage of a campaign to lower the
burden on lower and middle income groups".

The financial journal "Moneyweb" said: "While there is much good news on the tax
front for individuals - rich and poor - in this year's Budget the major theme
coming through is sustainability and a desire to make the most of the successes
so far wrought. This desire is predicated on an understanding that while the
country's (economic) growth has been significant, it needs to be made use of
while it lasts."

In what was his 10th Budget Speech, Trevor Manuel said: "The budgetary choices
we make give life and meaning to the Age of Hope of which President Mbeki so
rightly spoke in the State of the Nation Address. The budget tabled here today
gives practical effect to our programme of social cohesion, and in particular to
prioritising the needs of the poor, for that is what it means for the rich and
the poor to share the privilege of a common nationhood."

Together with his speech and other documents, the Minister of Finance also
tabled the 2006 Budget Review, which analyses the overall socio-economic context
within which the Budget is prepared. In the Foreword to this document, the
Director General at the National Treasury, Lesetja Kganyago, observes correctly
that: "South Africa entered 2006 with a level of optimism befitting our young
democracy, balanced by sober reflection of how much more we need to achieve.
While we continue to make progress, the pressing challenges of social and
economic development are a constant reminder of how much farther we need to
travel."

In this regard, the Budget Review says: "South Africa's economic and social
policies flow from the democratic values and respect for human dignity enshrined
in the Constitution. Through the annual budget, Government seeks to ensure that
social and economic rights are progressively realised, that the legacy of
historical injustice is redressed, and that future generations will enjoy the
fruits of broad-based development and robust economic growth."

Summarising our budgetary response to the task to ensure that the "social and
economic rights (of all our people) are progressively realised", the Budget
Review says:

"The 2006 Budget proposals give greater impetus to social development and public
service delivery, continuing the strong focus on reducing poverty and extending
basic services to all South Africans. Additional support targets a wide range of
expanded programmes in housing, education, health, skills development, social
security, justice and fighting crime.

"Government recognises the need to moderate consumption expenditure and ensure
that investment enjoys priority in the allocation of available resources. A
structural acceleration of growth, if it is to be sustained and shared by all,
must rest on both broad-based capital formation and efficient public service
delivery. Major public infrastructure investments are planned for the period
ahead, and initiatives to improve the quality and efficiency of public
administration are being strengthened.

"South Africa's main 'network industries' - transport, communications, water and
energy supply - confront a series of complex strategic challenges with long-term
consequences for growth and development. Several investment programmes,
industrial policy initiatives and regulatory reforms aim to ensure that both
infrastructure capacity and improved economic performance underpin accelerated
economic growth and rising living standards.

"African development and peacekeeping initiatives, as part of government's
international efforts to encourage peace and security, receive further support
over the period ahead."

The "greater impetus to social development and public service delivery"
mentioned in the Budget Review is reflected in increased annual and medium-term
expenditures on various sectors. Thus during the three (medium-term expenditure
framework - MTEF) financial years 2005/6 - 2008/9, the average growth in
expenditure is projected as follows:

Education: 9.7% (R83.6 billion - R110.3 billion) 
Health: 9.4% (R48.8 billion - R63.9 billion) 
Welfare and social security: 9.8% (R73.1 billion - R96.8 billion) 
Housing and other social services: 25.0% (R24.4 billion - R47.6 billion) 
Police, prisons and courts: 9.7% (R47.0 - R62.1 billion) 
Economic services: 13.0% (R71.7 - R103.6 billion) 
General administration: 11.7% (R29.2 - R40.8 billion). 

By any standard, these represent very large expenditures, as well as highly
meaningful annual and medium-term increases. But perhaps more dramatic is the
fact that these outlays will be met almost exclusively from tax and other
resources that will accrue to government, without borrowing.

This means that our government will carry these enormous expenditures without
having to borrow unsustainably large sums of money from the financial
institutions. In other words, the "impetus" to which the Budget Review referred
will not be financed by generating a significant budget deficit.

Our government's projections indicate that the state debt cost as a percentage
of the GDP will decline during the MTEF period from 3.3% to 2.7%. During this
period, the budget deficit will rise from 0.5% to 1.2% of GDP. To understand the
scale of the turn-around with regard to the state debt cost, we should remember
that by 1992/93, immediately preceding our liberation, the overall budget
deficit had reached 7.9% of the GDP. Commenting on the phenomenal progress we
have achieved in this regard, Minister Manuel said: "Part of the answer lies in
financial policy and debt management: in 1998, for every Rand of revenue
collected, 24 cents was spent on servicing state debt; in 2005 the debt cost 14
cents, and by 2009 it will be 10 cents."

To put this differently, this means that in 1998 from every Rand of revenue, our
government had to pay 24 cents to the financial institutions from which it had
borrowed money to finance the budget deficit, remaining with 76 cents to meet
the needs of our country and people. Thanks to the manner in which our
government has managed the public finances, the sum available in 2005 to address
these needs had grown to 86 cents. It will rise to 90 cents by 2009.

These outstanding achievements, which have, over time, created more state
resources to address the needs of the people, are a result of the work our
government has been doing to implement the decisions of the Alliance and the
rest of the broad democratic movement to achieve the correct macro-economic
balances mandated by the Reconstruction and Development Programme (RDP) document
we adopted in 1994.

In this regard, in his Budget Speech Minister Manuel made the important
observation that: "In the noise and haste of economic policy debate, we forget
too easily that there are long lead times in the practical implementation of
policy. Our present economic performance reflects the choices we made a decade
ago, and the economic reforms now in progress will yield their returns five and
ten years from now. There are no joys without the nightmares that precede them
and spring them into light..."

What he was referring to was what we had done to implement the macro-economic
proposals contained in the 1994 RDP document, through GEAR, the Growth,
Employment and Redistribution Programme adopted by our government in 1996.

In the section on "Vision and Objectives", the RDP document said that the
democratic government must "ensure a macro-economic policy environment that is
stable".

The document went on to say: "The existing (1994) ratios of the deficit,
borrowing and taxation to GNP [Gross National Product] are part of our macro-
economic problem. In meeting the financing needs of the RDP and retaining macro
stability during its implementation, particular attention will be paid to these
ratios. The emphasis will be on ensuring a growing GDP, improved revenue
recovery, and more effective expenditure in order to make more resources
available. In the process of raising new funds and applying them, the (macro-
economic) ratios mentioned above must be taken into account."

To emphasise this perspective, the RDP said: "We must finance the RDP in ways
that preserve macro-economic balances, especially in terms of avoiding undue
inflation and balance-of-payments difficulties...Government policy and
mechanisms of raising finance are crucial to the success of the RDP. If they
were to cause excessive inflation or serious balance of payments problems they
would worsen the position of the poor, curtail growth and cause the RDP to fail.
Government contributions to the financing of the RDP must, therefore, avoid
undue inflation and balance of payments difficulties. In the long run, the RDP
will redirect government spending, rather than increasing it as a proportion of
GDP..."

Commenting on our government's steadfast pursuit of these objectives, Trevor
Manuel said: "Members of the House who have been with us since 1994 know that as
we enter a new phase of policy development, under the Accelerated and Shared
Growth Initiative (ASGISA), we do so on the strength of continuing
implementation of our Reconstruction and Development Programme, which itself was
supported by the macroeconomic consolidation initiated as the Growth, Employment
and Redistribution Strategy."

Among other things, reflecting on the macro-economic adjustments and objectives
called for by the RDP, this 1996 Strategy said: "What options are open to
government? An expansionary fiscal strategy could be considered. 

However, even under the most favourable circumstances, this would only give a
short-term boost to growth since it would reproduce the historical pattern of
cyclical growth and decline. Increased growth above 3 percent would be choked
off by a rising current account deficit, upward pressure on real wages and
curtailment of investment plans. Higher fiscal deficits would also lead to
higher inflation and higher interest rates, exacerbating the burden of interest
payments on the fiscus. More importantly, in the present climate of instability,
a fiscal expansion would precipitate a balance of payments crisis. Without
attention to more deep-rooted reforms, there is no possibility of sustainable
accelerated growth."

Through GEAR, and consistent with the RDP, our government therefore decided to
implement an integrated reform programme that would include, in the words of
GEAR:

* a renewed focus on budget reform to strengthen the redistributive thrust of
expenditure; 
* a faster fiscal deficit reduction programme to contain debt service
obligations, counter inflation and free resources for investment; 
* an exchange rate policy to keep the real effective rate stable at a
competitive level; 
* consistent monetary policy to prevent a resurgence of inflation; 
* a further step in the gradual relaxation of exchange controls; 
* a reduction in tariffs to contain input prices and facilitate industrial
restructuring, compensating partially for the exchange rate depreciation; 
* tax incentives to stimulate new investment in competitive and labour absorbing
projects; 
* speeding up the restructuring of state assets to optimise investment
resources; 
* an expansionary infrastructure programme to address service deficiencies and
backlogs; 
* an appropriately structured flexibility within the collective bargaining
system; 
* a strengthened levy system to fund training on a scale commensurate with
needs; 
* an expansion of trade and investment flows in Southern Africa; and 
* a commitment to the implementation of stable and coordinated policies. 

As a result of the implementation of this programme, leading to the reduction of
the public debt, lower inflation and interest rates, and manageable balance of
payments ratios, as well as the growth of our economy, we now have a larger
volume of resources to meet the needs of the people and accelerate the rate of
growth and development of our economy, the two central matters addressed in our
government's 2006-2007 Budget.

Among other things, the Budget therefore provides for:

* improved social welfare grants to benefit the poorest in our society; (NB: 
* According to the Finance Minister, "Social grants contribute more than half of
the income of the poorest 20% of households, and have doubled in real terms over
the past five years.") 
* increased personal disposable income for lower and middle income earners and
pensioners through tax relief; 
* increased affordability of houses through the elimination of transfer duty for
houses costing less than R500,000; 
* increased support for small business to expand the economy and accelerate job
creation; 
* tax relief for companies through the abolition of the Regional Services
Council levy, which should encourage higher private sector investment; 
* increased allocations for skills development; 
* large economic and social infrastructure spending, which is fundamental to the
acceleration of economic growth and job creation, as visualised in ASGISA, and
the improvement of service delivery; and, 
* improved service delivery in education, health and social welfare. (In this
regard the Finance Minister said, "A core priority is to strengthen education,
public health services and social welfare services. These are largely provincial
responsibilities, and so the largest adjustment in the 2006 Budget is to the
provincial equitable share, which receives an additional R30.9 billion over the
next three years.") 

Towards the end of his Budget Speech, the Minister of Finance said: "Having
reached this place, on our mountain journey, let no one speak of frontiers
exhausted. We have ahead of us the joy of discovering, uncovering, and forging
new forms, new ways, within an expenditure framework designed to accelerate
growth, broaden reconstruction and development, and reinforce partnerships
between state and citizen on which our progressive democracy rests."

This moment on our challenging mountain journey demands that, as "Moneyweb"
said, we "make the most of the successes so far wrought". Acting in partnership,
in a people's contract, state and citizen must use the favourable situation all
our people have created together over the nearly 12 years of democracy, to
achieve new advances towards the birth of the caring society and winning nation
for which many sacrificed their lives. The 2006-2007 Budget has provided us with
significant resources to realise this outcome.
 
Thabo Mbeki

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Elections 2006

Support the plan to make local government work better

Building on the achievements, and learning from the experience, of the first
five years of democratic local government, the ANC has developed a plan to make
local government work better for all South Africans.

This plan has emerged from a detailed review of the goals reached and the
challenges confronted in the effort to transform the social and economic
landscape of South Africa's towns, cities and rural areas. After just five
years, a great deal has been achieved. A lot of lessons have been learnt. Yet
much more still needs to be done.

That is why the ANC is determined to make sure local government plays its role
in the people's contract to create work and fight poverty - that it assumes its
central place in the effort to build better communities; safer and more stable
communities; communities that have affordable services and access to economic
opportunities.

The ANC realises that these objectives will not be realised unless all South
Africans work together to achieve them. They will not be realised unless all
three spheres of government work together, in a spirit of cooperation, to
develop local government capacity, build infrastructure and ensure the efficient
supply of services.

Strengthen local government

An important pillar of the ANC plan is therefore to build and strengthen local
government as a vehicle for local development. In its review of local government
performance, the ANC-led government has identified a number of municipalities
that need intense, hands-on support to meet their obligations to the people. The
ANC-led government has assembled high-calibre teams of skilled and experienced
people, who are being deployed to work with these municipalities to tackle the
problems they face.

This programme, called Project Consolidate, is already beginning to have a
positive impact in some of these councils. By drawing together the collective
strengths of national and provincial government, the ANC is well-placed to
ensure that these spheres of government work harder in the next five years to
build local government.

In addition, the ANC will ensure that more resources and trained personnel are
provided for local government. Audits are being conducted of the skills that
each municipality needs; and a programme will be introduced to train both
councillors and staff, and to employ more competent managers and technicians.
The success of the work of local government over the next five years is
significantly dependent on the introduction and development of a whole range of
managerial and technical skills in this sector. The ANC is determined to respond
to the shortage of skilled personnel that continues to limit the potential of
many municipalities across the country. Local government needs, in particular,
to benefit from the massive targeted investment in skills development that forms
part of national government's Accelerated and Shared Growth Initiative (ASGISA).

Advance local economic development

The ANC's plan to speed up economic growth and job creation - of which ASGISA is
a central part - will be translated into concrete steps in each municipality in
the country. To ensure that everyone pulls in the same direction in building
better communities, every ANC-led district and metro will hold a 'Summit for
Growth and Development' within one year of the elections. These summits will
bring together social partners - government, business, labour and community
organisations - to develop concrete steps towards higher rates of local economic
growth and poverty reduction. Each partner will be encouraged to identify the
concrete things that they will do to make local economic development a reality.

The ANC will use the Integrated Development Plans (IDPs) in each municipality to
train more people, open up work opportunities through the Expanded Public Works
Programme, bring in more investment in areas with economic potential, and
provide better education, health, water, sanitation and other services. These
plans, which will be drawn up in consultation with communities, will benefit
also from large infrastructure projects that are being implemented throughout
the country. These projects will help create more work opportunities and
stimulate local economic development.

Bring national, provincial and local government together, the ANC will pool
resources to build more and better roads, infrastructure for water and
sanitation, and schools and clinics where they are needed, in rural and urban
areas alike.

Accelerate service delivery

By improving the capacity of local government, by ensuring that all spheres of
government work together, and by making use of the additional resources that are
now available, the ANC will be able to make decisive advances over the course of
the next five years to address the severe backlog in the provision of basic
services to poor communities.

During the first eleven years of democracy, basic services and infrastructure
have been provided on a scale never seen before in South Africa. We are now
poised to accelerate the delivery of services and infrastructure to those areas
that do not yet have access to them.

We have made important progress, for example, in eradicating the bucket system,
and replacing it with decent sanitation facilities. The ANC's plan for local
government aims to soon complete this process, so that no community will still
be using the bucket system by 2007. All communities will have access to clean
water and sanitation by 2010. All houses will have access to electricity by
2012.

The ANC is determined to ensure the goal of universal provision of free basic
services is achieved. Already, around 3.9 million households receive free basic
water and free basic electricity reaches 2.9 million households.

Through this plan, the ANC will improve the way government provides housing to
ensure better quality houses closer to economic opportunities. It will combat
corruption and inefficiency in the administration of housing waiting lists, and
improve services at hospitals and clinics, schools, police stations and other
government centres in our communities.

These targets may be ambitious, yet they are also realistic. They demonstrate
both the extent of our achievements to date and the value of the experience we
have gained. They are an indication that, whatever challenges we may continue to
face, working together in a people's contract, we can and will do more.

More Information

Elections 2006 website 
http://www.anc.org.za/elections/2006/index.php

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