Vol.3 No.7, 03 March 2003

A Timid Budget not a Sane One

By Margaret Legum

There are two ways of assessing the 2003 budget. One sees it as gradually increasing the fiscus’ benefits to those who have not been included in the fruits of economic growth so far. That view sees the past years of fiscal conservatism as having laid the basis for continuing growth, so that it is now able to spend in the direction of excluded people.

In that light, South Africa is now a successful economy in which it is possible to make a great deal of money, because government taxes are very low and so is the regulation of capital. It is assumed that the already successful are the geese that lay the golden eggs, and they are now able to lay enough eggs to begin to feed the rest.

In that light the budget may be seen as successfully distributing some of those golden eggs in the form of gradually increasing targeted welfare benefits – pensions, means tested child allowances, school feeding, subsidised education, health and water, food relief – as well as infrastructure construction that uses unskilled labour.

At the same time the golden egg layers are offered new incentives. Tax relief, costing the fiscus R15.1 bn, is given to everyone. Most of it goes to people earning less than R250, 000 a year. But 21% of that cost to the fiscus benefits the really rich. They also get relief for depreciation, start-ups and write-offs. And companies expanding overseas can export more of their capital – up to R1 bn.

The understanding that underlies that view of the budget is that, in the words of the Minister, growth must be ‘affordable and sustainable for twenty years from now’. Poverty reduction he sees as an objective ‘while’ paying attention to growth – the implication being that the two are mutually inconsistent. So bringing excluded people into the economy is seen as a cost rather than an investment.

That provides a clue to the other view of the budget. Like those that have gone before, this one entirely lacks boldness. The fact is that this budget is extremely timid in its approach to South Africa’s major economic, political and social problem – poverty, unemployment, alienation.

That half of our population that is structurally excluded from contributing could be productively activated by a massive focus on getting effective purchasing power into poor communities. This would benefit everyone, including productive enterprise. Lasting growth is impossible while we waste half our population.

A major start could be made through introduction of a non-means tested Basic Income Grant (BIG) which is currently rejected on two grounds. One is the twenty year affordability criterion – as though anything can be guaranteed in the modern world over that period. Another – that it introduces a ‘dependency culture’ – is directly contradicted by the Minister’s quote from Amatya Sen that ‘freedom is the principle means of development’. No one can be more dependent than South Africa’s destitute millions – a BIG would give them some freedom to contribute to development.

A bold budget would throw the resources of the state into regenerating local economies rather than keeping export-oriented, highly capitalised enterprise happy. The Minister could budget for expansion of the internal market, so that growth is firmly rooted in our own resources. But that would need a new approach to macro-economic policy making.

The worst aspect of this budget is that it yet further privileges the financial sector, to which we are already too much in hock. That sector produces something like a third of our tax receipts; and it is able to hold us to ransom by moving capital abroad. An amnesty is given to those who illegally moved money overseas: they can now bring that money back with virtually no penalties. And the amounts that can be taken overseas to tax havens and other off-shore destinations is increased.

That gives them even more influence over government policy. We have created a vicious circle for ourselves – a benign one for them: the richer we allow them to become, the more we have to pay attention to their demands. What is needed is more, not less, control over capital created in South Africa. When will we learn that trying to please footloose capital is a hiding to nothing.

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