Budget 2008/9: Business Unusual or Business as Usual?

On Wednesday, Finance Minister Trevor Manuel delivered his 2008/9 Budget Speech, amidst much speculation over the potential influence of the ANC’s new “left” leadership on social spending and the broader fiscal policy stance.

Budget 2008/9, however, reflects much of the same caution that has characterised budgeting over the course of Manuel’s twelve-year term.

Manuel began the Budget Speech by re-affirming his commitment to the “prudent fiscal stance” government has assumed since 1996, whilst acknowledging that this has been met with “some severe criticism”. Some aspects of this stance, such as recent budget surpluses, have prompted particularly hard questions, given South Africa’s urgent and still pervasive social challenges.

In a global economic environment which both government and independent analysts regard as the least favourable in recent years, the Minister’s cautionary tone comes as no surprise. Growth and revenue expectations have been adjusted downwards, and government expenditure is set to increase at a significantly slower rate than in preceding years. Surpluses are again budgeted for to provide further reserves against unfavourable developments.

Caution is also reflected in the scope of adjustments to social grant expenditure. Whilst expenditure on this function totalled R62.5 billion in 2007/8, 2008/9 provides for a nominal increase of 13.3% to R70.7 billion. This reflects an extension of the child support grant eligibility age to 15 in January 2009, some lowering of the state pension eligibility age for men, and inflation-adjustments to grant amounts.

However, these increases do not reflect any further reprioritisation. Grants as a share of GDP remain constant at 3.3% for 2008/9 and 2009/10, and are estimated to decline to 3.2% in 2010/11. Furthermore, although the grants have been adjusted in line with changes in broad consumer inflation indices such as the CPIX, the inflation rate for items which make up the lion’s share of poor households’ budgets is likely to continue to remain higher than this. Food prices, for example, increased by 10.3% in 2007.

How much would a more radical expansion of, say, the child support grant cost? Back of the envelope calculations suggest the sums involved are quite modest. Assuming unchanged poverty rates and a rate of grant uptake comparable to that experienced to date, the fiscal burden of extending social grants to vulnerable children aged 15-18 would still be less than R10 billion in 2010/11. Even R10 billion would only entail that total grants expenditure amount to about 3.6% of GDP in 2010/11 rather than the 3.2% currently proposed. Greater emphasis on this grant specifically is appropriate given the unqualified obligations imposed on the state by the Constitution when it comes to the rights of children.

Direct income support measures are of course only one side of the coin. The budget continues to focus on investment in physical and human capital through further education and skills initiatives, infrastructure and the like. The social return on these investments will occur over the medium-term and is indispensable to shared and accelerated growth.

However, while this year’s budget may appear to be “Business As Usual”, it is a good time to engage in further debate, by the public and in Parliament, on whether this cautionary stance has made adequate inroads into poverty reduction, or whether a new approach towards optimal trade-offs between future and present needs may be required.

Len Verwey and Kate Lefko-Everett
Researchers
Political Information and Monitoring Service (PIMS) Programme
IDASA