26/02/2014 – ACDP broadly supports counter-cyclical budget, given global economic uncertainties and domestic challenges

ACDP Parliament
Press Release on the Budget 2014/2015
Steve Swart, ACDP MP

ACDP broadly supports counter-cyclical budget, given global economic uncertainties and domestic challenges

  • Focus must be on implementing the National Development Plan, leading to economic growth and job creation
  • Welcomes expenditure on productive side of economy – on infrastructure
  • Cautions on budget deficit, state debt levels and ballooning  state wage bill
  • Calls for corruption and wasteful and irregular expenditure to be addressed

ACDP MP and member of the Stranding Committee on Finance, Steve Swart, today broadly supported Minister of Finance, Pravin Gordhan’s counter-cyclical budget announced earlier today.

“The ACDP broadly supports Minister of Finance, Pravin Gordhan’s budget speech. The Minister has not departed from government’s prudent, yet counter-cyclical fiscal policy, notwithstanding labour unrest in the mining sector, as well as slowing global and domestic economic growth prospects. The Budget is now firmly aligned with implementing the National Development Plan (NDP), which provides policy certainty. It sends a very clear message to reassure investors and credit rating agencies that National Treasury will not deviate from its trademark fiscal conservatism, notwithstanding political pressure from various quarters.

Domestic economic growth targets have been revised slightly downwards from November’s forecast of 2.1% to 1.8% of GDP for 2013/14. Slower growth means lower tax revenues, with SARS expected to be hard-pressed to meet its target of R 899bn for this year.   State expenditure for 2014/15 will reach R1.252 trillion, with total budget revenue estimated to be R1099.2bn, resulting in a budget deficit of R153.1bn or 4.0% of GDP.

The risk of unwinding quantitative easing in the US will impact emerging markets, like South Africa, which relies heavily on external funding to fund the trade account deficit. We need to continue increasing exports where the country has natural endowments and comparative advantage.

The ACDP has previously expressed its concerns about the budget deficit, projected state debt stock and spiralling debt service costs (R107.7bn for 2013/14). The size of the budget deficit at present results in debt service costs rising faster than any other category of spending over the medium term, which crowds out spending on developmental priorities. The projected debt-service costs for 2014/15 are R5bn higher than the October 2013 estimate. This raises important questions as to the sustainability of the government’s present fiscal path, albeit that South Africa is in a far better fiscal position than many other developed countries. It is crucial that the debt consolidation path is maintained, with the budget deficit set to narrow to 3% of GDP in 2016/17 should the economic recovery gain momentum.

On the other hand, the ACDP understands the need to stimulate economic growth in the short-term to create more sustainable jobs and for additional spending on social welfare, health, education and fighting crime. We also support the stimulatory spending on infrastructure development. We regret that while National Treasury has made funds available for infrastructure development and incentives, those investments are taking longer than expected to come on stream. This negatively impacts economic growth and the implementation of the NDP.

It is imperative that if government wants real growth in manufacturing and mining sectors, it must create the environment to make South Africa more competitive, efficient and sustainable. We cannot afford debilitating and ongoing strikes such as we are experiencing in the mining sector. We must also spend more on the productive side of the economy – on capital investment in infrastructure – rather than on consumption (regrettably up to 42% of revenue is spent on salaries) and welcome the Minister’s emphasis in this regard. This is also in line with the NDP, which proposes a social compact to reduce poverty and inequality, and raise employment and investment. We also need to increase productivity to become more competitive in the global arena.

It is also crucial to ensure that value is obtained for every rand spent. The Minister has stated that he will continue reducing government expenditure and wastage by reviewing programmes and addressing corruption, wasteful and irregular spending. It is unacceptable that up to R30bn of the annual state procurement budget is misappropriated. This is probably only the tip of the iceberg and greater urgency is required. We welcome the cost-containment instructions that have been issued to limit public sector costs such as air-travel, accommodation, etc. These instructions need to be strictly adhered to.

The ballooning public sector wage bill also cannot be sustained. Affordable public-sector wage agreements will have to be negotiated after the three-year wage settlement reached in 2011 comes to an end this year.

The ACDP also supports the cost-of-living increases for social welfare grants, which will alleviate the position of the poorest of the poor. In view of public outrage at widespread sexual abuse of vulnerable women and children, both the criminal justice and social development (social workers) sectors need substantial strengthening.

The increase in fuel levy and road accident fund levy, totalling 20 cents per litre, will be inflationary and hit consumers hard, given the further substantial increases in the petrol price due to exchange control fluctuations as well as the hikes in electricity charges.

The ACDP does not support increasing personal and company tax rates to fund increased government expenditure and welcomes the personal tax relief of R9.25bn . The alternative to increasing tax rates is to increase the net of taxpayers and to reduce government expenditure.

Government must also reduce wasteful expenditure and address widespread fraud and corruption in the public sector. It is unacceptable that, according to estimates by the Special Investigating Unit, up to R30bn of the annual state procurement budget is misappropriated. This deplorable state of affairs must be addressed by drastically improving the capacity of such law enforcement units to fight fraud and corruption.

Government departments are also expected to reprioritise funds to the amount of R40bn over the next three years. This, together with draw-downs from the contingency reserve will result in the revision of budget baselines without any increase in government spending, which is commendable.

While the ACDP supports the budget in broad terms, we will be closely scrutinizing its proposals in detail, including debt consolidation proposals to reduce the deficit and the projected state debt levels. This, particularly, given Parliament’s additional powers and responsibilities in terms of the Money Bills Amendment Act.”

-Ends- 

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