Struggling to pop the champagne

2014-03-03 10:00

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Over the past 20 years of democracy, the national budget has usually been a beacon of light on the sometimes foggy political scene, writes Jaco Leuvennink

Since the start of the new political dispensation in 1994, the economy has been like a champagne bottle full of promise. But South Africa is struggling to uncork it.

The fault does not lie with the handling of public finances. A quick glance at the figures in the early 1990s compared with more recent ones shows this clearly.

The budget for 1992/93 provided for a budget deficit of 8.6% of GDP, and talk of a debt trap started. In 1992, the economy shrunk by more than 2%, inflation was 14% (food inflation averaged at 25%) but employment decreased by 6.5% from 1989 to 1993 and gross domestic fixed investment (money for business expansion) fell by 15%.

Today, the situation looks much better despite the fiscal easing since 2009 to ameliorate the impact of the international financial crisis.

The major player in the budgets of the past two decades was undoubtedly the current planning minister, Trevor Manuel, whose 13 years as finance minister (1996 to 2009) were, along with those of Nicolaas Havenga of the National Party (1924 to 1939 and again from 1948 to 1954) the longest in this post.

He was widely respected for the way he enforced fiscal discipline and brought and kept deficits, debt and taxes under control in the midst of growth stimulation, expanding budgets and reprioritisation of spending.

He was able do so because of the sale (restructuring) of state assets and stable economic growth (except during the time of a few international shocks), among other things.

Manuel succeeded two white business leaders as minister of finance. Derek Keys, the former executive chairman of Gencor, was appointed as minister of finance by the National Party in 1992 and was retained in his post by former president Nelson Mandela in 1994.

When Keys resigned the same year, Mandela asked Nedbank head Chris Liebenberg to take over.

Keys and Liebenberg started devoting attention to the huge budget deficit and state debt, and felt their way around taxes and expenditure. When Mandela appointed Manuel in the middle of 1996, many people held their breath.

Not long before that, Manuel had annoyed white capital when he supported the All Blacks against the Springboks at Newlands and then shortly after his appointment, he referred to the financial markets as “amorphous”.

But he learnt quickly and could rely on very competent Treasury officials, headed by then director-general Maria Ramos.

An important development was the medium-term budget framework over three years that was fully implemented in 1999. It ensured stability and made the budgets more predictable.

The careful budgets of Keys and Liebenberg definitely also laid a firm foundation for Manuel’s emphasis on fiscal sustainability and the lowering of state debt.

Perhaps it was therefore a blessing in disguise the new government kicked off in 1994 in the aftermath of a recession with many economic warning lights flashing.

Manuel has often said he knew nothing about economic affairs when he was appointed to economic planning by the ANC in the early 1990s.

He also had a high regard for journalists and his press conferences were often characterised by jokes and jesting. In addition, he wasn’t too proud to come to your humble little office to explain some technical issue around capital gains tax that he couldn’t explain earlier and first consulted his officials about.

To remain in touch with the views of the person in the street, he introduced the concept of Tips for Trevor, where the ordinary person could say what he wanted to see in the budget.

As his confidence grew, his philosophical and poetic approach became a hallmark of budget speeches. In 2001, he quoted the west African poet David Diop’s poem about the oppression of Africans and how freedom in Africa nevertheless continues to grow like a tree. He was also fond of the Indian economist and Nobel prize-winner Amartya Sen.

Diop’s poem introduced the theme that earlier difficult fiscal decisions were now leading to the “sweet fruits of freedom” and that “planting, working and the tree of freedom must be cherished”.

First apples, then grapes, then plums and eventually also indigenous trees ready for planting appeared as a symbolic gesture on journalists’ and members’ seats in Parliament annually on budget day.

But Manuel’s promise of “fruit salad” in reply to a journalist’s question one year about which fruit’s turn it would be the following year did not materialise. Ramos’ joke, “we are running out of fruit now”, did.

Since 2010, Pravin Gordhan – less colourful, but reliable and without surprises – had to relax fiscal policy and use the leeway allowed by 2007/08’s budget surpluses to neutralise external shocks.

The room for fiscal manoeuvring has now been wiped out and growth is still disappointing. There is therefore a great test awaiting Gordhan (and his successor).

Manuel’s words in a budget speech in 2006 certainly sound very far back in time:

“This is the year of abundance, in which all South Africans will pick the fruits of economic growth.”

» Leuvennink has been reporting on the budget from Parliament since 1993

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