FINANCE MINISTER MANUEL PRESENTS 1999/2000 BUDGET

On 23 February 2000, Finance Minister Trevor Manuel unveiled the national budget for the financial year beginning on 1 April 2000. About thirty representatives of SACC member denominations and affiliated para-church agencies, who were taking part in a Budget Week workshop sponsored by the SACC and the Ecumenical Service for Socio-Economic Transformation (ESSET), watched the speech. Afterwards, the workshop participants drafted a statement lamenting that the budget "missed opportunities" to effect meaningful redistribution in favour of poor households. The statement also emphasised the need for a radical reform of the budget process--as envisioned in the new constitution--to ensure democratic participation in the determination of national spending priorities.

Positive notes

The 2000/2001 budget contains a few positive steps:

• Capital Gains Tax - Long advocated by tax reformers, this tax on income realised from the sale of securities, property and other assets (excluding family homes, private vehicles, or other household goods) is likely to affect only the most affluent households. However, the capital gains tax will only be introduced in April 2001. The delay may allow people who expect to be affected by the tax to take action to limit their liability.
• VAT - The Minister did not announce an increase in VAT, in spite of speculation that he would. This tax on goods and services is a particular burden on the poor. Also, there will be no further reduction in the corporate tax rate this year.
• Deductibility of donations - The rules regarding the deduction of charitable donations on income tax returns will be relaxed. Previously, only donations to tertiary educational institutions could be deducted from taxable income. The government now plans to raise the maximum deduction to R1000 and to permit deduction of donations to pre-primary and primary schools and organisations caring for children, the aged and people living with HIV.

Areas of concern

This year's budget speech contained much more good news for upper and middle class households than it did for poor and unemployed people. Some of the budget's most problematic aspects are:

• Income tax cuts - The government plans to reduce income tax rates across the board. Although the rate reductions will be larger for taxpayers in lower income brackets, wealthy people will be the biggest beneficiaries. A person earning R24 000 a year will find her or his tax bill reduced by R330, while a person earning five times as much will be better off by R3560. People who earn less than the current tax threshold (R19 526) won't realise any advantage. Indeed, they will be worse off to the extent that the loss of revenue--estimated at close to R10 billion--compromises the state's ability to deliver basic services.
• Pensions - Old age, disability, and care dependency grants will increase by only R20 per month to R540--R20 less than is needed to keep pace with inflation. Child support grants will not increase at all. Viewed alongside the tax cuts, this means that next year the state will put more money "in the pocket" of each person earning more than R180 200 than it will give to each pensioner.
• Military spending - This year's budget reflects the commencement of the weapons procurement programme finalised last year. The total cost of the weapons--exclusive of interest on the loans secured to finance the deal--will be R30 billion. This will be spread out over at least eight years. The deal will cost R2,9 billion in 2000/01, rising to R4,1 billion in 2001/02 and R5 billion in 2002/03. Over the next three years, the defence budget will grow faster than any other sector.
• Macroeconomic model - Key provisions of the budget--the emphasis on reducing deficit spending and liberalising exchange controls, for example--indicate that the government continues to adhere to macroeconomic policies that have been associated with limited economic growth and job losses.
• Service delivery - With the exception of the health budget, which grew slightly faster than the rate of inflation (7.7%), most social service programmes were cut in real terms. Housing, water affairs, and transport were especially hard hit, suffering absolute reductions on last year. Education and welfare failed to keep pace with inflation. This year's budget includes R1.2 billion for job creation and poverty alleviation efforts, up from R1 billion in 1999. However, the budget documentation gives no assessment of how (or if) last year's money was spent.

Division of Revenue

R185 billion of total revenue will be shared among the spheres of government. National government will get 41% (R76,1 billion) and the provinces will get 57% (R106 billion). Local government--which raises additional revenue through rates, levies, and fines--will receive 1,5% (R2,8 billion).

The provincial share will be divided among the provinces as follows: Eastern Cape - R17,8 billion; Free State - R7,3 billion; Gauteng - R17,2 billion; KwaZulu-Natal - R21,1 billion; Mpumalanga - R7 billion; Northern Cape - R2,5 billion; Northern Province - R13,7 billion; North West - R8,7 billion; Western Cape - R10,8 billion.