2013 MTBPS: Job creation depends on tackling the twin deficits

Note to editors: This statement was distributed to members of the media at a press briefing hosted by DA Shadow Minister of Finance, Tim Harris MP, DA Shadow Deputy Minister of Finance, David Ross MP, and DA Shadow Minister of Trade and Industry, Dr Wilmot James MP at Parliament this morning. The full document can be obtained here. 

Our economy is in bad shape. 

Slow growth, persistent unemployment and high inflation have become simple facts of life in South Africa, undermining hope.

We believe that all of our economic woes are summed up in two key measures:

• an increase in the current account deficit - caused by a decline in our country's competitiveness arising from government's mismanagement of the economy and failure to attract investment; and
• a widening of the fiscal deficit - because of a deterioration in government finances driven by a decline in tax revenue and an inability to contain government spending.

Today we call on Finance Minister Pravin Gordhan on announce a comprehensive plan to tackle South Africa's twin deficits during this year's Medium Terms Budget Policy Statement (MTBPS).

Today the DA puts forward ten proposals that we believe should be at the centre of this year's MTBPS - five to tackle the current account deficit, and five to tackle the fiscal deficit.

If implemented, we believe that these measures will reduce poverty and create jobs by putting South Africa on a high-growth path.

Deficit 1: The Current Account

The current account represents the balance of exports versus imports. A deficit on this account means we are importing more than we are exporting.

In South Africa's case, our current account deficit has widened at a startling rate. In the third quarter of 2013 it rose to 7% of our Gross Domestic Product (GDP), one of the highest in the world.

Other developing economies, like Thailand (-0.1%), Mexico (-1.6%), Indonesia (-3.2%) and Chile (-4.8%) are doing much better. 

The DA calls on Minister Gordhan to announce the following 5-point plan to increase SA's competitiveness and turn around the current account deficit:

Increase actual spending on infrastructure to 10% of GDP to lower input costs: Inadequate infrastructure increases costs, but government has underspent on promised infrastructure investment by an average of 22% over the past three years;

Announce measures to constrain increases in administered prices: Administered prices like electricity and water tariffs, communication costs and fuel prices have all placed a significant upward pressure on inflation, thereby inhibiting local production;

Introduce reforms to boost competition in domestic product markets: The Finance Minister should announce increased budget allocations to the competition authorities and the National Consumer Commission and cut red tape to make it easier for new entrants to start and grow new businesses;

Open up South Africa to trade with Africa: South Africa is failing to take full advantage of the rapidly expanding consumer market on the African continent. Data from 2011 indicates that South Africa was the 10th biggest exporter to the rest of the continent, exporting less to Africa than countries like Spain, The Netherlands or Korea; and

Announce final abolition of exchange control: Our out-dated exchange control regime is a vote of no confidence in South Africa, by South Africa - Minister Gordhan should announce a time frame for the final abolition of exchange controls.

Deficit 2: The Budget Balance

The budget balance measures whether government is spending more than it earns in tax.

In February South Africa's budget deficit was estimated at 4.6% of GDP for 2013/14 - the fifth consecutive budget deficit after a surplus in 2007. This means that the state is consistently spending more money than brings in, and running up more debt.

Post global financial crisis fiscal deficits in other emerging economies have recovered faster than ours because we have been unable to constrain government spending and slow growth has hammered tax revenues.

The DA calls on Minister Gordhan to announce the following 5-point plan to tackle the budget deficit:

Steps to restore confidence in the mining and automotive sectors: The mining and automotive sectors are significant contributors to our tax base, and major job creators, but labour unrest in these sectors have led to deterioration in investor confidence and compromised future investment;

Moderate increases in the public sector wage bill and reform pay structure: South Africa wage bill of R400bn per year ranks among the highest amongst middle-income countries. In each of the past six years the government wage bill has increased by more than the inflation rate, and in three of those years the increases were more than twice the rate of inflation;

Trim excessive government operating expenditures: spending on bloated ministries and extravagant ministerial perks, unnecessary consultants, the President's personal home in Nkandla, and money lost to corruption has to be reined in;

End hand-outs to ineffective state-owned entities: When contingent liabilities are included, government's net indebtedness now extends beyond 50% of GDP - In 2012 government had R470bn worth of guarantees extended and R183bn drawn. Minster Gordhan should announce plans to manage the fiscal impact from uncompetitive state-owned enterprises like SAA by exploring partial or full privatisations; and

Establish policy certainty once and for all: Economic policy uncertainty continues to seriously impede investor confidence in South Africa to the detriment of growth and job creation - Minister Gordhan should provide detail on exactly how NDP policies will be implemented in the face of opposition from the tripartite alliance partners. Ideological gridlock at the top of government has prevented any meaningful economic reforms and entrenched policy uncertainty and a lack of political leadership.

Ideological gridlock at the top of government and a lack of political leadership has prevented meaningful economic reform and entrenched policy uncertainty in SA. 

This week Minister Gordhan has an opportunity to announce measures to tackle the twin deficits to revive our economy and save jobs.

Statement issued by Tim Harris MP, DA Shadow Minister of Finance, October 21 2013

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