Gordhan has passed his first test - serious challenges remain

Minister Gordhan has passed his first test, and there are a number of positive initiatives in the MTBPS. These include DA initiatives such as:

• Wage Subsidies to lower the cost of employment
• Opportunity Vouchers to give young South Africans access to work and skills development
• Accelerated Exchange Control Liberalisation

The Minister also referred favourably to openness to trade, Export Processing Zones, and tax incentives to stimulate job creation, also DA proposals.

This budget shows that the Global Financial Crisis has had a much worse effect on our economy than anyone previously thought. Unlike most other emerging markets, we entered the crisis extremely vulnerable with low savings rates, high inflation and a large current account deficit.   Structural rigidities in our economy generally, and specifically in our labour market, worsened the impact once the crisis hit.  This is a clear indictment of the ANC's micro-economic management of our economy; the Minister's admission in this regard is the first step towards much-needed reform.

These weaknesses have filtered into our fiscus, where:

• The budget deficit has doubled from February's estimate, to a massive 7.6% of GDP.  This is completely out of line with other emerging markets and similar to deficit levels in rich countries that have more resources to cope with higher debt levels;
• The tax shortfall is R70bn - even while government expenditure has risen to more than 35%. This urgently needs to come down to below 30%;
• GDP growth is -1,9%, much worse than the rest of Africa which is experiencing positive growth. We are now a drag on the continent;
• Government debt as a % of GDP is 30% now but will rise to 40% in 2012.  It hasn't been at these alarming levels since immediately after Apartheid.
• State debt costs will increase by 18% a year over the next three years.

The DA welcomes the announcement that transfers to State Owned Entities (SOEs) must be trimmed, but there are number of items on which the minister's hand was forced due to a combination of bad judgment, poor management and incompetence. These include:

• R 589 million spent on new Government departments
• R 200 million transfer to the SABC
• R 1 billion rand capital assistance to the Landbank
• R 192 million for the Airbus deal

These funds are paid out because SOEs cannot run themselves without costing the taxpayer millions of rands, and because Zuma created new government departments to duplicate the already inefficient public service. In total, these items add up to R 1.98 billion - this is hardly significant of increased efficiency in public spending, on the contrary.

South Africa needs more than lip-service on the huge drain on the fiscus that is SOEs - when Gordhan says they require urgent attention then it is no good to continue bailing them out as if nothing has changed.

Gordhan needs to become aware of the infuriating ineptitude of government to cut down on wasteful and failing SOEs, while households find it harder each day to pay taxes. He would do well to recognise that taxpayers are tired of seeing ridiculous bonuses paid to senior executives of SOEs while these institutions fail to deliver on their mandate: SOEs received R 200 billion worth of financial aid in the 2008/09 financial year, mostly because they fail dismally in managing their own affairs.

South Africans are growing more resentful against the lumbering ways of government each day; the poor are ignored and taxpayers are abused all in the name of protecting a very narrow interest within the ANC.

This government is going to have to get serious about cutting inefficient expenditure, or we risk entering a debt trap.

The "Framework Response to the Economic Crisis" is 10 months old but almost none of it has been implemented.  The recession will be over before it is put into place.

In general, however, we welcome the minister's renewed focus on job creation and his hard line on inflation, public sector wage increases and infrastructure bottlenecks.

We also welcome his comprehensive cost saving measures that have identified savings of R3bn, or 3% of government expenditure

Statement issued by Dion George, MP, Democratic Alliance shadow minister of finance, October 27 2009

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