South Africa's First Post-Apartheid Budget Favors Gradual Change

THE big guns in South Africa under white minority rule - major corporations, security forces, and diplomats - have all come out winners in the first post-apartheid budget.

Delivered on Wednesday by President Nelson Mandela's new government, the budget offers a gradual approach to changing the power structures developed under white minority rule. Mr. Mandela appears to have gone out of his way to win the support of company directors, the diplomatic community, military, and police generals.

At the same time, the millions of blacks who voted Mandela into power will receive only slightly more under the government's new spending program.

The government will spend about R37.5 billion (US$10.1 billion) over the next five years under its Reconstruction and Development Program to create jobs, build new homes, and invest in other projects to help alleviate black poverty. Business applauded the move to finance such programs through contributions from government departments rather than plunge the country into debt through borrowing.

Despite promises by the African National Congress during the election campaign for the April poll that the defense budget could be cut substantially to fund such projects, the security forces did not do badly. The ANC-led government of national unity maintained high levels of spending on the huge security network.

While defense was the biggest contributor ($175.5 million) to the initial $675 million for the reconstruction program, spending in this area for the current financial year was increased to 8.7 percent of the $36.5 billion budget from 8.1 percent of total spending last year.

The DFA - another big winner

Diplomats were the other big winners: The budget of the Department of Foreign Affairs (DFA) almost doubled, which will help pay for an increase in foreign embassies abroad.

The ANC's constituency may find it strange that the DFA received the biggest increase in spending, more than $1.75 billion, at a time when it was thought the country would be concentrating on black poverty. ANC officials say the organization had always been well-represented overseas, and they want to sustain contacts. DFA officials add that many countries were opening up new embassies here, and South Africa would be expected to match the representation.

The motive for maintaining high spending on defense and police, however, seems to be an attempt to avoid greater unemployment. Mandela appeared in person to break up a protest outside ANC headquarters on Tuesday by young blacks demanding jobs in the Army.

High defense spending can also be explained by the need to integrate members of the black liberation armies into the conventional national defense force. The defense forces expect to spend $401 billion for the integration of these forces and another $84.5 million on assembly points to facilitate this process.

Subtracting these funds from the total budget, some economists estimate that defense was actually cut in real terms by 13 percent. Others disagree: Ben Turok, who is responsible for such reconstruction programs in the PWV Province, which incorporates Johannesburg and Pretoria, says the cuts should have been much bigger. ``I don't see why we need an Army at all,'' he says.

Since the integration of black liberation fighters into the national defense force is more a social issue, and no real threats are apparent from neighboring countries, there is hope for slashing the defense budget in the future, he says.

Special taxes on whites

Another reason for high spending on defense is the need to pay for the national peacekeeping force set up shortly before the April elections to ensure a smooth transition to democracy. This temporary army, generally considered a failure by most critics, cost the taxpayer $103.7 million to train and equip.

To help pay for such extravagances, the government announced that whites will incur a special tax to pay for the country's historic transition. Those affected are individuals and companies with taxable income of more than $13,500 a year - essentially white business people and white salary earners.

Delivering the budget in Parliament, Finance Minister Derek Keys said: ``Through the grace of God, we have had a wonderful transition, but we incurred costs of R4 billion [US1.08 billion]. The one-off income tax effectively closes the financial book on the transition without jeopardizing the fiscal progress made so far.''

Mr. Keys said there had been pressure to raise the excise duty on cigarettes here to 50 percent of the retail price to bring it in line with those in many other countries in the world. But he said the government had decided to introduce such increases in a phased manner. There also will be a moderate increase in excise taxes on alcohol.

The budget was the first glimpse into how the new government plans to meet rising expectations of blacks and at the same time attempt to instill confidence in local and overseas investors. To achieve these goals, Mr. Keys announced a lowering of the company tax from 40 percent to 35 percent, while increasing secondary taxes on companies from 15 to 25 percent.