Fiscal framework debate: Economic growth not adequately addressed
Note to editors: The following speech was delivered today in Parliament by DA Shadow Minister of Finance, Tim Harris MP.
The Minister has now tabled three Budgets in extremely challenging global conditions. That our country remains fiscally resilient is a credit to the millions of South Africans who work to keep this economy going and to our well-managed national accounting system.
We welcome the fact that, within this fiscal framework, there is a focus on public infrastructure investment. This was neglected by the former Finance Minister, who oversaw 10 years of inadequate expenditure. We welcome the stated commitment to fighting corruption and fixing procurement. And we welcome Treasury's new flexibility on tax incentives for Special Economic Zones.
Overall, we support the Minister's vision of building a capable state, but we fear that this vision will continue to be ideologically undermined by Cosatu, compromised by deployed cadres, and eventually drowned in regulations imposed by ministers eager to intervene in the economy in a totally uncoordinated manner
The reduction in the budget deficit is positive news although the ratings agency Moody's has pointed out that "this achievement was derived partly from a continuing inability to spend a large share of the investment budget, which is detrimental to the economy's growth potential".
This inability to spend is perhaps the reason why, as a percentage of GDP, infrastructure spending for 2012 will actually be lower than the figure the Minister forecast last year. He should tackle skills shortages in the public service, the mountains of regulations that delay projects, and ANC cadre deployment, before raising hopes that we will be able to spend more to tackle our R1,5 trillion infrastructure backlog.
One obvious solution to improve project management and fill funding gaps is to mobilise private sector capacity, as promised in the Budget speech. Someone will need to tell Public Enterprises Minister Gigaba, however, because he poured cold water on this proposal when he said "the debate on port concessioning has not been settled", as well as Brian Molefe, the CEO of Transnet, who said "there is no role for the private sector in the main channels of rail infrastructure".
Attitudes like this in government perhaps explain why our use of Public Private Partnerships is amongst the lowest in the world at 4% of infrastructure spending. It may also explain why we persist in bailing out failing parastatals like Denel and Alexkor, which combined receive more than R1bn in this Budget.
We should send Minister Gigaba and Mr Molefe to Brazil, where they would land at an airport that last month sold a 51% stake to investors for the equivalent of R70bn - a quarter of the total amount our government will spend on infrastructure in South Africa this year.
We could certainly use this sort of money, Mr Speaker. Moody's last week said that Treasury's debt stabilisation programme relies on compressing the growth in the wage bill, something they do not believe will happen.
There are also concerns about future revenue considering that the Minister this year ratcheted up dividends tax and capital gains tax - probably the last loads he could add to the taxation scales without tipping South Africans from "heavily taxed" to "totally overtaxed".
New tolls and increases in administered prices are already too much for our economy. Imposing carbon tax and local business tax and VAT, payroll or income tax increases to fund the NHI will push us over the edge and do serious damage to our culture of taxpaying.
Instead of speculating around what new taxes to impose, this Budget should have boosted potential tax revenue by doing more to drive growth in South Africa. If we accelerate growth from the anaemic 2,7% forecast for this year to the 8% targeted by the Democratic Alliance, we will double the size of our economy, and our tax revenue, in ten years.
But to start down this path the Minister should have provided a real growth narrative in the Budget. For example, his counterpart in India, Minster Mukherjee, recently called GDP growth of 6.9% in India "disappointing" and said that his budget would provide "a roadmap for achieving a higher growth trajectory". And in Brazil, Finance Minister Mantega said, in his Budget speech: "Brazil has the ability to grow faster. The budget we are implementing will make vigorous growth in Brazil possible."
Where were these sentiments in our Budget? What we needed was a detailed plan to drive faster growth by building a stakeholder economy: A South Africa where ordinary job seekers, workers and small business owners get a fair stake in our economy and a real shot at making it in a well-regulated market.
In the DA's Alternative Budget we tabled proposals for tax breaks for small businesses to help with cash flow problems as well more generous tax provisions for employee share ownership schemes.
Most importantly, to help give 3,2 million young job seekers a stake in the labour market, we called on Treasury not to yield to Cosatu on the Youth Wage Subsidy. The President announced this policy two years ago, it had R5bn allocated to it by the Finance Minister last year and it had an implementation date of 1 April 2012. The fact that Cosatu has managed to block it at Nedlac since May 2011 is a national disgrace.
This raises serious questions about the Minister's influence in government and undermines his intention to build a capable state and start rolling back unemployment in South Africa.
We support this fiscal framework because of the Budget's stated commitment to rebuilding the infrastructure of this country. However, if future budgets introduce huge new taxes, fail to target higher growth and continue to marginalise young jobseekers, we will not be able to support them.
Issued by the DA, March 6 2012
Click here to sign up to receive our free daily headline email newsletter
