South Africa can’t afford to ‘live now, pay later’

By Thabo Mbeki

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.

**This article was first published in 2002 as part of Volume 2 No. 8 of the ANC online journal, ANCToday.

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