Wednesday, February 20, 2008

‘Hard work ahead’ - Manuel’s 2008 Budget message

By Nadia Samie
20 February 2008

“...there are storm clouds ahead.” This is how Finance Minister Trevor Manuel began his 12th budget speech to the nation on Wednesday. The overall tone of the speech was one alluding to hard work ahead, something he referred to repeatedly in the speech.

The minister reported 5 percent GDP growth in 2007. While the address yielded few surprises, it did unveil R60 billion of new spending to Eskom over 5 years, to support the straining power utility’s capital financing requirements over the next five years.

The budget announced steps to extend social security:

  • The maximum values of the disability and old-age grants will increase by R70 per month from R870 to R940 in April 2008;
  • The child support grant will increase by R10 in April this year, and by a further R10 in October, taking it up to R220 per month and as of January 2009 will be extended to include children up to their 15th birthday;
  • Foster care grants grow from R620 to R650 per month.
    South Africa has a total number of 12.4 million social grant beneficiaries. Next year the government will spend R75.3 billion in social assistance. As announced by President Thabo Mbeki in his State of the Nation Address earlier this month, the pensionable age for men will be reduced from 65 to 60 years. This year it will come down from 65 to 63 years, it will go to 61 in 2009, and 60 years by 2010.

    “What we present today is an incredibly strong budget,” Manuel told journalists in a briefing before the speech.

  • According to Manuel, growth to the economy has averaged 5 per cent per year since 2003, the longest period of constant growth on record. On the downside, he conceded that food prices had increased by over 10 percent in 2007, using mealie meal, the staple food of many in the country, as an example, he said that in the price of a 12.5kg bag had gone up from R37 to R49 within the space of just one year. While he recognized that inflated food and petrol prices hit the poor hardest, he did not promise any reprieve on this in the near future.

    While he said that, “during the past five years, employment has increased at a faster pace than at any point in the past 20 years, adding over 1.5 million jobs,” he accepted that the high rate of unemployment remained South Africa’s greatest economic challenge and is central to the battle on poverty. The minister says that efforts to increase employment of youth must be intensified and skills development better-focused. He introduced tax measures to broaden the internship allowance and to include longer-term apprenticeships targeted at technical skills and support for small businesses will also focus on encouraging job creation.

    Causes of the “storm clouds ahead” that the minister alluded to include: turbulence in the North American economy, inflation and South Africans’ general lack of savings that increase vulnerability to financial turbulence. Despite this, Manuel says that the economy’s longer term outlook remains favourable.

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