SA tries to work for fairer finances

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South Africa's government of national unity produced its first full budget yesterday, aimed at attracting foreign investors and gently shifting wealth and services from mainly white upper-income groups to the poor black masses.

The finance minister, Chris Liebenberg, told parliament the government planned to spend 153.5bn rand (£26.9bn) and raise R125bn (£21.9bn) in taxes in the 1995-96 financial year. Both figures have risen roughly in line with South Africa's 9.9 per cent inflation.

"With re-prioritisation and rationalisation, what is spent will be spent more effectively," Mr Liebenberg said, adding that he aimed to be both sensible and realistic.

The planned R29bn deficit is slightly less than last year's in relative terms, helping the Johannesburg markets to close higher. The rand, floating freely since Monday, edged up to about 3.57 to the dollar.

A spokesman for Sanlam, one of the big financial institutions, said: "Sanlam feels very positive about it. The budget seems aimed at growing the economy. This budget is very foreign-investment friendly." The 35 per cent corporate tax rate had been left untouched.

Foreign investors will benefit from abolition in October of non-resident shareholders' tax. A substantial portion of the budget deficit will also be financed with foreign loans. In the spirit of the new South Africa, Mr Liebenberg said, President Nelson Mandela and other ministers had accepted salary cuts.

And women will now pay the same taxes as men. But the budget's political success will hinge on whether new social services can be deployed quickly enough to satisfy expectations of the poor black majority.

Spending on housing will more than double but will still be only 3.4 per cent of non- interest outlays. Health spending will go up to 13.4 per cent and education costs, the biggest budgetary item, edged up to 26 per cent. Defence spending will fall from 10.5 per cent to 8.8 per cent but the policing bill will rise from 8.2 per cent to 9.2 per cent of budget spending. Duties on alcohol and tobacco have risen.

Mr Liebenberg saved his harshest threats for tax evaders and their accountants, vowing to bring them to book.

He hoped an amnesty would help to increase the number of tax-payers and allow a reduction in personal tax. He expected revenue would be enhanced by what he described as well-established and broadly-based economic growth.

Mr Liebenberg said that R1.2bn would also be raised by selling part of the strategic oil reserve built up during the apartheid years.