MTBPS: Let's get South Africa working again

Note to editors: The following statement was distributed at a press conference held in Parliament today by Dr Dion George MP, DA Shadow Minister of Finance, Sej Motau MP, DA Shadow Minister of Energy, and Kobus Marais MP, DA Shadow Minister of Economic Development. 

DA governments spend the people's money efficiently and productively. Where we govern, we cut out wasteful expenditure and focus on spending that gives people the opportunities to improve their lives.

Wherever we are in power, whenever we consider a new policy, we ask ourselves: Will this policy stimulate economic growth? Will it create the jobs that are necessary to lift people out of poverty?

Minister Pravin Gordhan should start applying this rule as well.

The 2011 Medium Term Budget Policy Statement (MTBPS) will signal government's fiscal priorities for the upcoming budget to be announced early in 2012.

Put simply, he needs to trim the fat and spend money carefully on programmes that create an enabling environment for growth and jobs.

In his State of the Nation Address earlier this year, President Zuma promised South Africans that 2011 would be the "Year of the Job". The promise to South Africa was clear: more jobs and more growth.

But, instead of achieving the progress that was promised, our economy has stagnated. This year, unemployment has risen steadily and is approaching crisis levels. Nearly seven million people are unemployed. More than half of our young people are jobless and without the prospect of a job.

Similarly, GDP growth is slowing and will not meet forecast expectations of 3.4%. Instead, it is expected to drop to roughly 3 percent. This is nowhere near high enough to facilitate rapid development and employment growth.

What is going wrong?

It is true that slow growth in Western economies, the downgrading of the United States credit rating and the ongoing Eurozone debt crisis have all conspired to create exceptionally difficult economic conditions.

It is likely that Minister Gordhan will devote a great deal of his statement tomorrow to the difficult global environment. There is no doubt that global conditions are difficult, but it is politically expedient for him to do so.

However, if Minister Gordhan is honest, he will acknowledge that this government could have done a lot more to weather the storm. And, if he had the courage, he would announce a series of steps that would stimulate growth and create hundreds and thousands of jobs.

All he needs to do is follow in the footsteps of the other developing economies that have managed to weather this storm. Turkey, Brazil and India are all excellent examples.

We need to learn from their success. And the lesson from their budget priorities is clear: cut the excesses and focus on productive spending that actually delivers real outcomes to the people.

This Medium Term Budget Policy Statement is Minister Gordhan's opportunity to be bold and decisive by cutting waste and spending on items that will grow the economy and improve people's lives.

Trimming the fat

A global economic downturn - more than any other time - is when governments need to cut the fat. And we're not talking about cutting spending on the essentials like education, health, social grants and infrastructure. We mean cutting spending on those items that don't add any value to our economy.

A DA government would do the following in its MTBPS:

Disband pointless state entities

Those state entities that fail to deliver any real value to our people must be disbanded. The National Youth Development Agency (allocated a R370 million annual budget), the Economic Development Department, and the Department of Women, Youth, Children and People with Disabilities (allocated a R715 million annual budget) should be disbanded. In the case of the Department of Women, Youth, Children, and People with Disabilities, the core mandate of the department can be transferred to the Department of Social Development.

Other pointless entities such as district municipalities should be scrapped as well. This alone will free up roughly R5 billion annually for more productive investments.

Cut indulgent expenditure on Ministers and officials

Our government splurges on indulgent expenditure much too often. 

Some notable examples include:

•    Roughly R400 million in state resources has reportedly been allocated to renovating the President's official residences. The Public Works Department has disputed this, but it has yet to release more specifics. 
•    The Public Works Minister has also this year revealed that R183 million was spent on purchasing multiple mansions for each minister as official residences in Cape Town and Pretoria. 
•    Earlier this year, the Deputy Minister of International Relations and Cooperation chartered a private jet in Norway at a cost of R200,000 because she didn't want to put her purse through a luggage scanner.

The list of unnecessarily indulgent splurges goes on and on. At last count, the Zuma administration's wasteful expenditure bill since 2009 has hit R5.3 billion. This has to stop.

We can channel these resources much more productively into growing the economy, improving education and health care and providing more housing for the poor. 

Improve financial management

A key priority for Minister Gordhan on Tuesday is to announce a plan to cut out inefficiencies as a result of poor financial management. Reports by the Auditor-General that irregular expenditure across government has increased by 62%, and fruitless and wasteful expenditure had increased by 200%, in the last year should set alarm bells ringing.

The Minister needs to give a clear indication that financial management, and the elimination of irregular, fruitless and wasteful expenditure, is put on the agenda as an urgent priority.

In this regard, special emphasis needs to be placed on improving corporate governance at state entities. This is especially important in how it relates to the governance of the procurement process. The Special Investigating Unit recently revealed that roughly R30 billion had been lost in the last year due to fiscal leakage in our procurement systems. 

This essentially represents R30 billion in lost opportunities to deliver real services to our people.

Spending that improves people's lives

The MTBPS is an opportunity for Minister Gordhan to signal this government's budgetary priorities. A DA-run national government would prioritise the following:

Jobs proposals

The Minister of Finance should use the opportunity presented by the MTBPS to follow through on some important proposals relating directly to job creation. Most importantly, the youth wage subsidy needs to be implemented. The youth wage subsidy proposal that the Treasury has produced has the DA's full support and should be implemented as is, as soon as possible. The programme would cost R5 billion over three years and could help create up to 438 000 thousand jobs. The Minister must now just do it.

The Minister also needs to report back on the R10 billion that was appropriated earlier this year in the IDC's jobs fund. We need to know how effective this fund has been in stimulating job-creating development.

Investment in our future

We are going through a period of sustained deficit spending aimed at stimulating growth in these difficult times. That is the right choice under the circumstances. But it is important that the cost of reducing our fiscal space is far outweighed by the benefit of productive spending on programmes that improve people's lives.

The DA believes that future-oriented investments in education, health, infrastructure and growth-enabling projects are the best way to do so. Our alternative budget prescribes the following investments in these areas:

•    Increase investments in road infrastructure by another R8 billion
•    Give newly established small businesses a one-year tax exemption (R500 million)
•    Improve teacher performance by rewarding good principal and teacher performance (R150 million)
•    Improve teacher performance by spending another R1 billion rand on teacher training
•    Improve access to educational materials by zero rating VAT on books (R250 million)
•    Place failing schools under the management of succeeding schools (R500 million)
•    Improve health care by spending another R2.6 billion to fill all vacancies in public health care facilities.

All these proposals can be studied in further detail in our alternative budget for 2011/2012. If we save money by cutting out government inefficiencies and spending on vanity projects, we could easily afford these and other social investments.

Support for small business

Small to medium-sized businesses are the strongest drivers of job creation in our economy. Our government should therefore do everything in its power to help small businesses grow.

In the MTBPS Minister Gordhan must announce a range of new incentives to stimulate small business creation and development. These should include:

•    A tax holiday for newly established small businesses 
•    Increased support through the Small Business Development Agency 
•    Tax rebates for training programmes run by small businesses. 

Incentives for manufacturing

Besides small business, our labour-intensive manufacturing sector is crucial for job creation. But we need to create stronger incentives for investment in this sector.

Four industrial development zones (IDZs) already exist. They cost billions to establish and yet they haven't been successful in attracting large-scale investments. So we need to strengthen the incentives we offer to foreign manufacturers in these IDZs. This should include subsidies, stronger tax incentives, labour market reforms and cutting VAT on utility costs.

Improve health care

We need to fix our public health care system. It starts by filling vacancies, improving hospital management, decentralising hospital management from the national department and improving training, in particular for nurses. All of this can be done relatively affordably and can significantly improve the health care our people receive.

The National Health Insurance has been touted by government as a panacea for healthcare in our country. But, depending on how it is implemented, the National Health Insurance has the potential to bankrupt our government - or to force significant tax increases that could smother growth even further.

So the Minister needs to clarify - in much more detail than before - exactly what the fiscal implications of the National Health Insurance is expected to be, and how he intends to pay for it. The state cannot propose a massive plan, with huge fiscal implications, without clarifying its cost, how it is going to be paid for or who is going to pay for it. 

Managing debt responsibly 

All of this said, the Minister must take care to manage our deficit carefully. GDP growth is likely to be slower than anticipated and revenue could thus potentially be lower than expected. This means that the deficit, which was originally projected to be 5.3% of GDP, could become larger.

The DA strongly supports a counter-cyclical fiscal stance and therefore supports comparatively high levels of spending in the short to medium term. It is important that this period of increased spending does not compromise our long-term fiscal sustainability. 

Minister Gordhan must get the balance right. He must balance fiscal responsibility with spending that stimulates job-creating economic growth and provides a safety net for people at the sharp end of the economic downturn - the unemployed. As a general guideline, the deficit for 2011/2012 should not exceed 6% of GDP, and the stated objective of bringing the deficit down to 3.8% of GDP by 2013/2014 should remain unchanged.

Conclusion

The Medium Term Budget Policy Statement can be a first step in the right direction if the Minister does the right thing by trimming the fat and focusing on productive spending that will fuel growth and job creation.

In the long run, however, our economic situation requires a multi-pronged approach that goes beyond getting our fiscal priorities in place. South Africa needs a comprehensive economic policy overhaul to improve the competitiveness of our economy across the board. We need significant regulatory changes to our business environment, labour regime and tax code, coupled with absolute laser-like focus from government on implementing policies that attract investment and growth.

Although the Medium Term Budget Policy Statement cannot address all of these concerns, it will signal government's intent in respect of most priority areas.

Our government has allowed the South African economy to be buffeted by this economic storm for too long. The Minister has an opportunity tomorrow to start turning the ship around. It is his chance to map out a course and steer us towards a bright and prosperous future. Let us see how he fares. 

Statement issued by Dr. Dion George MP, DA Shadow Minister of Finance, October 24 2011

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