2013 MTBPS: More reassuring rhetoric with no real action to fix the economy, create jobs

Finance Minister Pravin Gordhan's budget is full of reassuring rhetoric, but not nearly bold enough in tackling South Africa's serious economic problems. 

Today there are 1.4 million more unemployed South Africans than there were on the day Jacob Zuma became president.  Lacklustre economic growth - which has slowed from 3.5% in 2011 to just over 2% this year - means we are being left behind by other developing economies. 

Countries like Chile (4.1%), Malaysia (4.3%) and Turkey (4.4%) are all growing twice as fast as we are, showing that National Treasury is simply wrong in blaming "global circumstances" for our slow growth.

Instead, we have to look our recent domestic issues, what Treasury calls "labour disputes, electricity shortages and other supply-side disruptions", which this budget contains no significant new measures to address.

Today the Minister pointed out what the problems are, but did not table any new actual measures to tackle them.

The proposals contained in the National Development Plan (NDP) would help, but few of the ideas in the Plan show up in the detail of this budget. The NDP proposes "active labour market policies", "regulatory reform" and the "removal of trade barriers", but government has not managed to implement a single one of these since the NDP was introduced.

Slow growth has also hammered tax revenue in this year's budget, which had a R3 billion shortfall. 

The Minister only managed to make the budget balance because of two factors:

Firstly, government will underspend by R3.5 billion this year. This highlights the significant capacity problems of a government that simply isn't able to spend what it plans to. The lack of capacity also shows in the fact that government departments had spent only 28% of their infrastructure budgets by the first half of the year; and

Secondly, the entire R4 billion contingency reserves have now been allocated for 2013. If our country runs into any unexpected difficulties in the next few months we will be seriously exposed.

We welcome the continuation of the "spending freeze" and the minister's commitment to tackle excessive spending on air travel, car hire, accommodation, catering and entertainment in "cost-containment instructions to be issued with the 2014 Budget".

It is, however, a pity that these instructions have not been issued in this budget since government departments have, on average, increased spending on these items by 6%-10% this year, threatening the Finance Minister's ability to constrain expenditure growth to around 2%.

The Budget also raises serious questions about fiscal sustainability: 40% of this year's budget will go into salaries, and this amount will increase by almost 7% each year for the next three years.

The fastest growing budget item over the medium term will be interest payments which will increase by 9.7% per year for the next three years. By 2016 we will be spending R140 billion servicing our R2.2 trillion debt. This will be more than we spend on healthcare in that year.

The only way to turn this situation around is for the minister to start turning his reassuring rhetoric into real action to drive growth, create jobs and tackle our economic problems.

Lastly, Treasury has made an extremely problematic change to the fiscal framework that means government will now be able to "sell the family silver" to settle the operating budget of government.

Because of this change, it appears as if this year's budget deficit has moved from 4.6% to 4.2%, when it has actually only improved to 4.5%. 

In effect, government has conjured up an additional R11 billion (from bond and currency adjustments) to help reduce the budget deficit.

This means, if government decides to sell state assets (like they did in 2009 when Telkom sold R4 billion worth of Vodacom shares) that amount will simply be used to bring down that year's budget deficit. 

This cannot be right, and we will be opposing it.

Statement issued by Tim Harris MP, DA Shadow Minister of Finance, October 23 2013

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