Issue No. 30
1998 Budget takes the RDP into the 21st Century
29 May 1998
Finance minister, Trevor Manuel, last week unveiled the 1998 budget which as the first part of a three-year spending plan (the MTEF), outlines the expenditure framework which will take South Africa into the 21st Century.
The budget sets ambitious goals for continuing the transformation of South African society. More than 60 per cent of expenditure goes to social services, including health, welfare and housing.
This budget provides comfort to all sectors of the population. Lower and middle-income tax payers will benefit from lower taxes, while the unemployed will benefit from the creation of the Umsobomvu Fund. This R1 billion trust for job creation, will be financed by a 2.5 per cent windfall tax on the money distributed to policy holders of Sanlam and Old Mutual when they demutualise.
Economic background to the Budget
- The economy grew by 1.5 per cent during 1997/1998. Although a modest growth rate, when one looks at it alongside the collapse of the emerging South East Asian economies, and the resulting turbulence in economies all over the world, this figure shows the strength of the South African economy
- Consumer price inflation was 8.6 per cent and is expected to fall two percentage points in the next year
- Productivity per worker has increased dramatically in recent years, reaching an increase of 4.1 per cent by the end of 1997
- Manufacturing showed major growth in 1997 with an increase of 3 per cent in the contribution of this sector to Gross Domestic product
- Exports increased by 5.3 per cent in 1997. The contribution of exports to GDP has increased from 27.6 per cent to 32.8 per cent since the ANC has been in power
- The budget deficit for 1997/98 was 4.3 per cent, compared with 5.1 per cent in 1996/97
- The target for the coming year is 3.5percent, compared with 10.2 per cent in the last year of the NP government.
The New Medium Term Expenditure Framework
In the budget speech, Minister Manuel outlined the MTEF. This, for the first time, looks at expenditure over the medium term. By looking at the budget over a three year period, government agencies will be able to plan ahead, which will improve value for money and deliver more and better services. It will also strengthen the political decision making in the budget process, and allow government to make concrete choices about the services it seeks to provide. It will provide for better service delivery, sustained planning and will allow departments to plan with the knowledge of what they will receive in the future. The MTEF will strengthen cooperative governance and decision making.
Key Features of the Budget
Receives a healthy increase from 20.2 billion to 25.1 billion, an increase of 25%. By 2000/2001 this figure will increase to R28.1 billion. The budget includes allocations for a hospital rehabilitation programme, which will help to maintain our public hospitals and community health centres.
Expenditure on welfare services and social grants will increase to R19.8 billion from R18.4 billion in 1998/99 to R22.2 billion in 2000/2001. With the significant progress that has been made in eliminating welfare fraud, this increase will ensure that many more of the needy receive assistance.
The housing budget for 1998/99 is R3.6 Billion. This is lower than last year because the funds for certain infrastructure projects are now allocated to the department of Constitutional development. Housing subsidy grants reached R300 million a month in 1997/98 and this is expected to increase in the coming year. More that 385 000 houses have been built or are under construction and 700 000 subsidies have been reserved, with these projects in various stages of development.
Education gets a huge R5 billion increase to R45 billion which will further increase to over R50 billion by 2000/2001, proving the government’s commitment to human resource development.
Land Redistribution and Land Reform
Spending on land distribution and land reform in the coming year will be R685 million, increasing to R967 by the end of the three year cycle.
Safety and Security
Government plans to increase spending on justice, police and prisons by about 7.8% per year over the MTEF period. An increased role is envisaged for the armed forces over the MTEF period.
While the budget for Water Affairs has not undergone a significant change for 1998/99, the RDP water and sanitation programme is well under way. 1.2 million people have access to water for the first time and 1020 projects which will bring water to 8.9 million people are completed or are in progress.
Income Tax Relief
Last year 2.8 Billion was put back into the pockets of taxpayers by reducing taxes. This year a further R3.7billion tax reduction proves the government’s commitment to lowering personal taxes. Someone earning R20 000 will save R300 per year and someone earning R60 000 will save R1 000
Improved Tax Collection
Through more efficient tax -collection, SARS was able to collect an additional R2.5 billion last year through greater efficiency. This year yet a further R2 Billion rand will be collected.
With this budget, the ANC again proves its ability to manage the finances of our nation, bringing about transformation while maintaining fiscal discipline. Only the ANC has the ability to advance the economic opportunities not just of the few but of the many.