31 Oct 2001

SOUTH AFRICA: Budget Targets Poverty Tax Regime

South Africa plans to reduce poverty, increase spending on social security and infrastructure development and cut taxes - as the country gets ready to ride out the international economic slowdown.

The South African Finance Minister, Trevor Manuel, released the country's Medium Term Budget Policy Statement (MTBPS) in Parliament, this week. The MTBPS sets out government's expected revenue and spending plans for the next three years. After keeping tight control on government spending for the past few years, Manuel is loosening the National Treasury's purse strings, in the hope that the spending will keep the South African economy growing.

Manuel says the policy is an attempt to put more money in the pockets of ''working people'' to improve their quality of life and boost the economy. Government has recently come-in for heavy criticism from trade unions and civil society for following a relatively conservative-economic policy and not making enough available for poverty alleviation and social services. Government plans to expand and improve its existing social security net, by extending the Child Support Grant (CSG) to more children and giving increases to those who receive old-age pensions and disability grants. Social security grants are one of government's most effective poverty alleviation programmes.

A special allocation also has been set aside to strengthen the country's Unemployment Insurance Fund (UIF), which has been weakened by the large number of people who are drawing on its resources. The fund provides short-term income for people who have lost their jobs. The policy statement points out that formal employers in South Africa is still shedding jobs, although new industries and the informal sector are taking up many of the unemployed. South Africa's unemployment rate is conservatively estimated to be around 35 percent of the working population.

The budget to deal with the impact of HIV/AIDS and related diseases also has been bolstered - through direct allocations and by strengthening the health system that is being strained by those suffering from the virus and other illnesses. HIV/AIDS and related diseases cost South Africa's provincial health services around R4 billion (500 million U.S. dollars) a year, according to the ministry of health.- The money for infrastructure spending has been earmarked for classrooms, clinics, water-schemes, roads and rural development.

The People's Budget Coalition, which brings together Congress of South African Trade Unions (COSATU) and the South African Council of Churches, among others, welcomed the ''modestly expansionary'' stance of the Medium-Term Budget Policy. However, the coalition adds: ''We feel it is still inadequate to meet the broader goals of alleviating poverty, creating employment and ensuring economic growth. It is certainly an improvement on the budgets of recent years, and goes much further toward meeting social and economic needs.'' It warns: ''The government's integrated HIV/AIDS strategy, and its funding, is inadequate.''

''We reiterate our concern that privatisation revenues are being built into the budget's revenue expectations, as this can cause short-sighted decisions on restructuring state assets,'' adds the coalition. Manuel announced that the public listing of the state-owned Telecommunications Corporation, Telkom, is on hold until next year, but insisted that the sell-off would go ahead.

Manuel is upbeat about the chances of the South African economy escaping the worst of the global slow-down. He predicts the economy will grow by 2.6 percent this year, and that inflation and interest rates will continue to drop.

The South African currency, the Rand, has dropped substantially against the dollar, but this has made the country's goods and services cheaper on the international markets -- and its exports are soaring at the rate of about 10 percent a year.

While economists feel that Manuel's predictions for economic growth are on the high end of the scale, they agree that he has reason to be optimistic, given South Africa's sound economic fundamentals. Most agree that a loosening of the purse strings was necessary in present international economic conditions. South African Chamber of Business, Chief Executive Officer, Kevin Wakeford, says: ''The current growth of the economy -- although weak -- could be supported by the proposed framework.''

But, for now, the MTBPS is nothing more than promises to South Africans in the street. While it sets out where government's economic policy is headed, it is only next year, when the detailed budget for the year is officially announced, that they will know how much more there is in their pockets.(IPS)


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