Budgeting for 8% growth: The DA's budget proposals to grow the economy at 8%, create jobs and halve poverty February 20 2012

Introduction

The Democratic Alliance's (DA's) Alternative Budget 2012 sets out how the forthcoming national budget could be structured to help accelerate economic growth in South Africa from 3% to 8%. It serves as a fiscal plan to complement our national policy project to define how a DA government would achieve 8% economic growth

If our economy were to grow by 8% a year it would double in size in ten years. That would mean that by 2022 we would have around R2 trillion to spend on service delivery a year: double what we can spend today

Our approach recognises the potential in every South African and obliges the state to give each the opportunity to succeed. Its primary tool for change is the power of markets, but it recognises that the state has an obligation to intervene when markets fail.

In particular, it requires the state to fight the tendency of market power to concentrate in the hands of the few over time. When monopolies dominate sectors, when labour markets are divided between insiders and outsiders, and when workers have no stake in what they produce, the state has an obligation to promote fair competition, and to prevent the oppression of one by another.

We believe that the only way to sustainably increase economic growth to 8% is to ensure that ordinary job seekers, workers and business people get a fair stake in our economy and a real shot at making it in a well-regulated market.

Recognising this, our Alternative Budget focuses in particular on using the power of government's fiscal policy to:

• Break down structural problems in the labour market by subsidising wages to help create jobs for the 3,3 million unemployed young South Africans;
• Give small business a fair chance by extending tax breaks to assist with cash flows and provide additional support services; and
• Help promote share ownership for employees through the tax system, and extend similar benefits to unlisted companies.

Across our economy, jobseekers, small businesses and ordinary workers need help to get a fair shot. Through this Alternative Budget the state would help to make markets fairer and more competitive.

It also provides other building blocks of opportunity such as better education, cuts in red tape, citizen protection and the promotion of sustainable resource use. And it tables plans to ramp up infrastructure spending - even beyond levels committed to by the President in the State of the Nation - to tackle the R1.5 trillion backlog in infrastructure identified by the Department of Public Enterprises.

Importantly, it does this without increasing the budget deficit, and partially offsets increases in the public-sector borrowing requirement by restructuring state assets.

Recently the governing party has been behaving as if its decision to build infrastructure is a new, magic solution to our economic problems. What it doesn't realise is that all good governments build infrastructure, using funding and direction from the private sector, as a necessary part of governing. And good governments don't let maintenance and building fall behind by R1.5 trillion.

We believe that the ANC's newfound enthusiasm for infrastructure is actually part of a misguided move towards "state capitalism". Motivated by a failure to accelerate growth or tackle unemployment, a decision has been taken to shore up economic power in the state.

But state capitalism, or a "developmental state", is precisely the wrong economic prescription for South Africa. 

Firstly, because a state that regularly fails to deliver the most basic of services will not be able to drive an East Asian style development agenda, no matter how appealing the model appears.

Furthermore the state capital model itself risks undermining liberty by compromising the role played by private actors and entities in balancing the power of the state. And it will ultimately stifle innovation, worsen cronyism and corruption, and crowd out private investment needed to fuel our growth.

The truth is that South Africa has stagnated economically over the past fifteen years relative to our peers because we have not reformed enough[1].

Another major concern is that state capitalism will more often than not make the government a lead actor in anti-competitive behaviour. In contrast, our approach works to promote competition by ensuring ordinary South Africans become market players in their own right: reaping the rewards of growth that come from open competition.

Our approach can also be seen in the way we have sought to draw in the private sector to meet our pressing infrastructural needs. For too long the state has had a monopoly on providing the infrastructural backbone for our economy and its failures have held our economy back. We would enable the private sector to become productive partners in financing and managing our huge infrastructure projects.

In short, we believe that the best way to finally roll back the divisive legacy of Apartheid is for South Africa to rapidly achieve a sustainable economic growth rate of 8%. To do this, the DA's policy set works to extend opportunity and promote participation and ownership for all. We believe the DA's Alternative Budget 2012 is an important fiscal policy contribution to this objective.

1.    Economic Growth and the National Budget

The Democratic Alliance Alternative Budget for 2012/2013 places economic growth front and centre. It charts a fiscal strategy to address our country's lacklustre economic performance, and put us on a high-growth trajectory that prioritises job creation and poverty reduction.

As such, it is a very practical component of the DA's 8% Growth Project, the party's headline policy development initiative to enhance the growth-oriented policies implemented where we govern, and develop a comprehensive, detailed national policy platform to take us into the 2014 election.

This Alternative Budget offers a preview of some of the pro-growth policies currently being developed in the DA. It draws on existing DA policy; proposals in the National Planning Commission's National Development Plan; as well as new proposals from the 8% Growth Project.

The crucial part of the Alternative Budget process is estimating the cost implications of our policy proposals and locating them within a fiscal framework. In doing so, this Alternative Budget strengthens the integrity and workability of the 8% policy development process, and reaffirms that the DA is indeed ‘ready to govern'. 

This year's Alternative Budget identifies the most important changes to the National Budget clustered in the five priority areas identified as being critical for growing the economy at 8%.

These priority areas are:

Job-creating Growth: These are proposals aimed at putting South Africa on a job-creating growth trajectory. Budget items in this section focus on assisting people to gain the necessary skills and education to enter the job market and compete in the global knowledge economy. They lower the barriers to entry for new job seekers, and incentivise employers to offer on-the-job training to up-skill existing employees.

Inclusive Growth: Proposals in this section place special emphasis on innovative strategies to ‘capitalise the poor' by making it easier for poor and low-income South Africans to acquire assets; broaden economic opportunities by allocating additional resources to promote broad-based empowerment; and improve health and welfare

Competitive Growth: Budget proposals in this section prioritise dynamism and entrepreneurship. They concern both competition within the South African domestic economy, and South Africa's competitiveness internationally. The proposals outlined aim to make it easier and safer to do business in South Africa; attract foreign investment; enhance productivity and innovation; improve the quality of government; and reduce the cost of living.

Strategic Growth: This is a central component of the Alternative Budget because it concerns how we promote South African business abroad, build beneficial relationships with key trade partners, and allocate resources in such a way as to maximise growth sustainably. It prioritises investment in infrastructure and trade while reducing expenditure on inefficient state entities.

Sustainable Growth: A prerequisite for long-term economic growth is sufficient clean energy and water and so we are paying particular attention to the ‘green economy'. Budget proposals to put us on a sustainable growth trajectory therefore include substantial investments in fresh water infrastructure, incentives to encourage the development of alternative sources of energy, and assistance for climate change adaptation.

Global economic conditions - particularly the European debt crisis, the lacklustre recovery in the United States, and slower than expected growth in the major emerging economies - will impact on South Africa's economic performance in 2012-2013.

Mounting debt, which is expected to reach 40% of GDP by 2014, and a projected deficit of 5.2% of GDP for 2012-2013, place further limits on South Africa's monetary manoeuvrability and fiscal flexibility (see fiscal sustainability section below).

Our fiscal framework reflects these difficult realities by seeking to balance prioritising growth, job creation and poverty reduction with long-term fiscal sustainability. A key component of this is reallocating resources from consumption to productive investment.

The proposals outlined in the Alternative Budget are shaped by the DA's overarching vision for an inclusive economy, which has at its centre the extension of ownership and the active participation of the majority of South Africans in the mainstream of the economy.

We in the DA believe that the role of government in promoting South Africa's economic interests should be one of championing our leading firms and entrepreneurs on the world stage, rather than expanding state control by dominating the economy itself.

State capitalism, the alternative approach preferred by the ANC, has serious flaws. Not only does it depend on a highly skilled, highly efficient corps of state employees, something our country sorely lacks, it also brings with it the risk of regulatory failure; political interference; rent-seeking; poor innovation and anti-competitive behaviour.

Contrary to this, the seven policy proposals outlined below highlight key aspects of the DA's approach:

• Provide reimbursement grants to employers to the value of the full amount spent on approved training, including schemes administered by employers' associations
• Establish a National Venture Capital Fund to facilitate innovation amongst high-growth, job-creating small businesses
• Introduce an employee bonus scheme for unlisted firms that replicates existing share incentive regimes for listed entities, which would impose a R50 000 limit over five years, and exclude: directors, shareholders and relatives of directors and shareholders, and require a five-year period before the payment of the bonus
• Introduce a Business Voucher Support Programme (BVSP) conditional grant to assist municipalities to offer support services to start-ups and SMMEs

• Establish a dedicated fund to support Farm Equity Schemes (FES)
• Increase budget allocation for the Department of Trade and Industry's International Trade Administration Programme
• Increase budget allocation for land reform programmes

1.1 8% Growth and Revenue

8% growth in GDP would have substantial, positive implications for the fiscus, which is important if we are to maintain a healthy and sustainable growth trajectory in the long-term.

Specifically, it means there would be more money for infrastructure such as roads and railways; services such as education and housing; and additional funds for employment incentives such as the youth wage subsidy.

Current estimates by Treasury indicate that government revenue was 27.6% of GDP in 2011 at R814bn. If we achieve Treasury's growth projection of 3.4% in 2012, revenue would grow by R76bn to R890bn.

If, however, our economy grew at 8% during 2012, revenue would grow by R179bn to R993 billion, an additional R103 billion without raising any additional taxes.

These funds could help pay for the electricity infrastructure backlog, build 1 500 000 houses, or establish a comprehensive incentives regime to stimulate job creation.

1.2  8% Growth and Jobs

Rapid economic growth is essential for meaningful job creation. However, the positive relationship between growth and jobs is not one of direct causation. It has also changed over time. Whereas in the 1970s, a 1% rise in GDP typically translated into a 1% increase in the rate of job creation, today a percentage rise in GDP increases job creation by 0.35%.

According to a recent study by the Centre for Development and Enterprise, this is because the South African economy has shifted to more skills and capital-intensive production[2].

There are three main factors that determine how many employees a firm is willing to hire: cost, skill level and productivity.

If the cost of labour is high, businesses prefer to hire workers who are very productive and highly skilled or may shift to more capital-intensive means of production. If the cost of labour is lower, business can shift to more labour-intensive production methods and hire more people with fewer skills.

In recent years, the high costs, low productivity, and inflexibility of South Africa's labour market have resulted in employers responding by shifting to more capital and skills-intensive methods of production.

This means that, despite healthy GDP growth of 4.4% between 2004 and 2008, employment growth only averaged 1.8% p.a.

If we are to shift to a job-creating growth path, it will require that we achieve accelerated GDP growth at 8% and that we engage in labour market reforms to improve flexibility, competitiveness and productivity.

1.3 Growth, Jobs and Poverty Reduction

As with job creation, the relationship between economic growth and poverty reduction is not one of simple causation. Rather, it is shaped by a number of important contextual factors to do with the rate of growth; income distribution; demographic trends; the structure of the labour market; and the social policies of the country in question.

This does not downplay the importance of growth. Studies have stressed that positive and sustained economic growth is essential for poverty reduction.

Ravallion and Chen, for example, in an assessment of 42 developing countries, find that the share of the population living on less than US$1 per day (approximately R7.50) declines by 3% for every 1% increase in mean per capita income[3].

This ratio can be enhanced through smart social policies; amendments to encourage flexibility in the labour market; and financial incentives that enhance employment creation. With these measures in place, the living standards of poor households can in fact improve faster than the average.

Brazil's inclusive growth trajectory has been particularly successful in this regard. According to the World Bank, as a consequence of high growth rates and inclusive policy choices, poverty rates in that country declined from 20% of the population in 2004 to 7% in 2009[4].

The DA believes we can match this success through our model of inclusive economic growth, which prioritises the extension of ownership and the active participation of young people, small business operators and ordinary workers in the mainstream economy.  

2 FINANCING 8%

2.1 Cutting Down on Waste

Efficiency gains refer to savings that can be made simply by adopting more cost-effective ways of conducting government business.

Under the ANC, the budgets of government departments and state entities have ballooned to cover all manner of activities not related to the core responsibilities of government.

The ANC's policy of cadre deployment has also meant that all too often the wrong people get ‘deployed' to positions of authority and responsibility. The resulting corruption and inefficiency means that ordinary South Africans do not get a government that represents good value for money.

There are two main sources of efficiency gains: cutting down on wasteful expenditure, and adopting leaner, smarter professional practices in government.

First, wasteful expenditure has grown considerably under President Jacob Zuma's watch.

According to the DA's Wasteful Expenditure Monitor, spending on luxuries for Cabinet Ministers, senior officials and their entourages reached over R 3,8 billion by 2011. This amount would be enough to build thousands of homes for low-income families, employ 20 000 new teachers, or open an additional 380 clinics. Some recent items include:

• R 2.4 billion bailout loan for Swaziland
• R83 million in various state sponsorships of the National Youth Development Agency Conference
• R1 billion in debt relief for Cuba
• Over R700 million in unexplained aid to Zimbabwe and Guinea Conakry
• R200 million on World Cup tickets for various national government departments and entities

The Auditor General (AG) of South Africa, Terence Nombembe, recently revealed the true extent of systemic wasteful, irregular, fruitless or unauthorised expenditure by government departments and entities; that is, wasteful spending that has become endemic to the way these ANC-run departments function. 

The AG's National Audit Outcomes report for 2010-2011 found that wasteful expenditure reached R20 billion, up from R16 billion in 2009-2010. Nombembe expressed concern about all but three of the 39 national government departments, with Public Works, Water Affairs and Mineral Resources performing particularly badly.

Simply by cutting down on wasteful expenditure, between R20 billion and R24 billion could be added to the fiscus in efficiency gains.

Second, many government departments and state entities receive budget allocations that do not correspond with their ‘value added', whether it is to the economy, society or the necessary functions of government.

A good example of this is the Presidency's ever-expanding budget. Over and above the failure of this, the apex of the executive arm of government, to provide leadership and a strategic direction for the country, the fact that the Presidency does not maintain good financial management practices means that it cannot justify the near R1 billion allocated to it each year.

Spending millions of rand on utilising three jet aircraft to ferry President Zuma and his entourage to the United States for a single event, to cite but one example, does not speak of a Presidency that provides value for money.

Allocating substantial financial resources to VIP security services for relatively minor public representatives, public officials and senior members of the ANC is another example of public money being consumed without any corresponding evidence of ‘value added'. The DA estimates that R200 million per annum could be saved on this single item alone.

The Alternative Budget therefore seeks to make significant efficiency gains by eliminating wasteful expenditure from government and reducing budget allocations where it is clear that there is a disconnect between the resources allocated and the benefits received by South African citizens.

We believe we would reasonably be able to recoup no less than 20% of the R20 billion identified by the Auditor General in a single year, so it is reflected on our budget as a potential cost saving of R4 billion.

2.2  A Streamlined, Efficient Government

The Zuma administration has overseen the dramatic expansion of government departments and budgets into a bloated state machine that, at the very least, does not offer South Africans value for money.

At its worst it results in the duplication of state functions, policy indecision and inconsistency, which ultimately hamper service delivery.

This is particularly marked in the field of economic policy where no fewer than four government entities vie to influence the direction of the economy: the Treasury; the Department of Economic Development; the Department of Trade and Industry (DTI); and the National Planning Commission.

Part of the reason for this is that President Zuma needed to appease various factions within the ANC alliance after winning that party's leadership contest in 2007.

After he became President of the country, a host of extra cabinet posts were created, some of which double up on existing portfolios (such as Economic Development), and others that do not achieve the purpose they were intended for (such as the Department of Women, Children and People with Disabilities).

Many of the responsibilities of these new ministries could easily be incorporated into other departments and entities.

Indeed, many ‘core' ministries already carry out these functions. The Department of Social Development, and the South African Social Security Agency, for example, already carry out all of the functions supposedly assigned to the Department of Women, Children and People with Disabilities.

The DA therefore proposes a wide-ranging restructuring of government to streamline its functions, remove excess bureaucracy and rationalise its overall structure to ensure that South Africans get value for money. These proposals are outlined in the sections that follow, and include:

• Disbanding the Department of Economic Development and returning line functions to the DTI
• Disbanding the Department of Women, Children and People with Disabilities
• Disbanding the Department of Public Works and assigning maintenance and building work to individual departments
• Merging the current Department of Public Service and Administration and the Department of Cooperative Government and Traditional Affairs
• Creating a single Department of Natural Resources that would incorporate the departments of Minerals and Energy, Environment, Water and Tourism
• Disbanding the National Youth Development Agency
• Disbanding the inefficient and bureaucratic Skills and Education Training Authorities (SETAs)

Streamlining government also requires that the right people be appointed in the right places. In this regard, the ANC's policy of cadre deployment not only encourages corruption and wasteful expenditure; it also results in government inefficiency and poor service delivery.

This is because all too often people are appointed to professional positions in the public service as a result of their political connections, not because they possess the necessary skills to get the job done. To compensate for this, consultants are then appointed to do the jobs that these political appointees are unable, or unwilling, to do.

This increases costs, which means that resources get diverted from where they are really needed.

Furthermore, the current wage bill trajectory is unsustainable. Since 2008, increases in remuneration of state employees have far outstripped inflation, which means there are fewer resources to spend on much needed infrastructure and improvements to service delivery.

In the interests of streamlining government, the DA therefore proposes that spending on consultants be reduced significantly; that we develop a comprehensive graduate recruitment programme for the public service to attract the best graduates - along the lines envisioned in the National Development Plan - to build a highly skilled and effective public service corps; and that public sector remuneration be performance-based.

2.3 Government Debt

South Africa again faces the spectre of rising debt and the crisis in the Eurozone should alert us to the dangers of ignoring our long-term fiscal sustainability. 

Finance Minister Pravin Gordhan has maintained the government's counter-cyclical fiscal policy. The DA supports this approach, and believes it has provided the correct response to the 2008-9 recession by increasing state spending to stimulate economic activity.

Consequently, the deficit is expected to be 5.5% of GDP for 2011-12. The total debt-to-GDP ratio is set to increase during the 2011/2012 year and is projected to reach 40% by the end of 2014. The deficit is projected to be 5.2% of GDP in 2012/2013 and is expected to come down to 3.3% by 2014/2015.

This is a much lower debt-to-GDP ratio than many European countries, such as Greece and Italy, which have debt stocks in excess of their GDPs. It is also lower than Brazil, which is a comparable developing economy.

The recent Moody's downgrade to the country's credit rating is concerning. In Moody's comment "Key drivers behind Moody's decision to change South Africa's outlook to Negative, 9 November 2011", the rating agency flags that the risk of government spending beyond the substantial budgeted amounts could push public debt to similar levels as lower-rated countries.

Furthermore, "the ratings could be downgraded in the event of a serious and durable deterioration in the debt metrics and/or heightened socio-political pressures, should these not be addressed in a manner consistent with future debt sustainability".

Another area of concern is the growth in allocated government guarantees. The allocation has increased to a substantial R456 billion even though the state owned enterprises (SOEs) have only utilised R151 billion. This means that only the figure of R151 billion is added to the country's debt.

If, however, the SOEs decide to use the full allocation of R456 billion, our debt levels could rise substantially and place the country's finances in a precarious position. The DA therefore maintains that instead of increasing contingent liabilities we should rather be raising equity, which would not affect our debt-to-GDP ratio. This proposal is outlined in greater detail below. 

The most important consideration is to ensure that government debt is used primarily to fund investments that can raise the efficiency and productive capacity of our economy rather than spent on consumptive items such as salaries.

In particular, it is essential that the sharply increasing government wage bill be addressed in order to increase the proportion of resources being directed to infrastructure investment.

This will face political opposition from within the ANC, especially its leftist alliance partners and populist youth wing, who will resist any reduction in spending. Public sector unions will also likely resist constraints to the ever-expanding public sector wage bill. 

2.4 Planning for Infrastructure-led Growth

Investing in infrastructure is a top priority for the DA, but the infrastructure we depend on to provide the foundation for economic growth is showing major signs of stress.

This undermines our global competitiveness and prevents us from reaching our economic potential, directly constraining economic growth and job creation. According to the National Planning Commission's diagnostic report, as a consequence of poor planning and inadequate investment in infrastructure:

 ‘South Africa has effectively missed a generation of infrastructure modernisation. Public investment in new and existing infrastructure falls short of what is needed to meet the country's economic and social requirements.'

In fact, according to the Department of Public Enterprise's own research we have over the last fifteen years accrued a backlog in infrastructure investment amounting to R1.5 trillion. In a sense we have been living in a false economy, where we were, for example, able to record a welcome budget surplus in 2007, but at the cost of real investment in our infrastructure.

This lack of infrastructure investment has had a devastating impact on our economy. Electricity blackouts may be the most obvious side effect, but it is also clear that our mining sector was unable to take advantage of the last global commodity boom because of a lack of infrastructure.

The infrastructure backlog is manifesting itself across our economy with failing waste water treatment plants, collapsing electricity distribution networks, inadequate rail capacity and insufficient energy generation to power the economy.

This lack of investment has also meant that the skills needed to build and maintain this infrastructure have not been retained, and in some cases we are now not even able to spend our infrastructure budgets.

The DA maintains that if South Africa wants to achieve an economic growth rate of 8%, we will have to significantly ramp up infrastructure spending as a percentage of our GDP.

At the moment the government is intending to spend 7.8% of our GDP on infrastructure, which declines in the outer years of the MTBPS to 6.8%. The DA believes that this percentage is too low, particularly given the R1.5 trillion backlog that we have accumulated over the last fifteen years.

As a means of eradicating our infrastructural backlog we would increase spend on infrastructure to 10% of our GDP investment, amounting to around R330 billion. This amount, however, would not be solely raised by the government or off the balance sheets of state owned enterprises (SOEs), as outlined in the next section.

2.4.1 Financing Our Infrastructure Build Programme

It is clear that a R330 billion infrastructure investment cannot be funded solely through the fiscus. South Africa has other budget priorities that we cannot crowd out.

In some instances, such as the upgrading of electricity distribution networks or the provision of water pipelines to households, direct government expenditure is required. In other instances, SOEs can raise the investment capital off their own balance sheets by taking on debt and repaying it through user tariffs.

The DA is concerned, however, that escalating tariffs, particularly in the transport and electricity sector, are having a direct impact on our global competitiveness. We therefore, propose several new financing arrangements for the infrastructural build programme:

• SOEs to sell off existing assets and then reinvest the proceeds into new infrastructure projects
• Listing various large infrastructure projects so as to raise equity capital from the financial markets
• Listing SOEs themselves, whereby a majority of shares could be retained by the state but capital could be raised on the sale of the remainder on global markets
• Allowing private sector players to build and manage those assets. This might include allowing more independent power producers (IPPs) in the energy sector or permitting mining houses to build their own rail connections to the ports.

We believe that financing arrangements such as these could spur investments of up to R55 billion per year, an amount which would not have to be financed directly by government departments (thereby allowing us to run a smaller budget deficit) and would minimise impact on state debt levels.

Essentially the DA is proposing that, for 2012, government departments would directly finance annual infrastructure spend of R115 billion - an amount reflected in our additional spending proposals in this document, and approximately R20bn more than National Treasury projected for 2012. On top of this we propose that SOEs would raise R160 billion off their own balance sheets, while a further R55 billion would be raised by going to the financial markets as outlined above. 

This would take our infrastructure investment up to 10% of GDP, allowing us to start rolling back the R1.5 trillion infrastructure backlog and building the new infrastructure required to grow our economy.

2.4.2 Appropriate and Cost-effective Infrastructure Investment

Although the DA welcomes the emphasis placed on infrastructure by President Jacob Zuma in his 2012 State of the Nation Address, we have grave concerns about his lack of clarity as to how the national government plans to overcome systemic problems such as poor planning, ineffective implementation and rent-seeking by crony elites; problems that have stymied infrastructure development plans in the past.

In some instances, such as the Medupi Power station, significant building delays have been experienced as a result of a company, linked to the ANC through Chancellor House, being unable to fulfil its contractual obligations. Many local municipalities are also unable to deliver on their infrastructural requirements due to maladministration or outright corruption in the awarding of tenders.

In other instances, for example both the Medupi and Kusile power stations, infrastructure projects are not being built in a cost-effective manner, requiring runaway tariff increases to fund cost over-runs.

All of these issues will have to be addressed if we are going to ensure that our infrastructure build programme delivers on its promise of providing a cost-effective backbone that will enable our economy to reach 8% economic growth.

The DA maintains that this can only be achieved by introducing competition into these key sectors and forcing our SOEs to drastically improve their performance in building efficient infrastructure. 

One added advantage of listing some of these SOEs and projects is that a measure of financial discipline will be provided by the market and by private players. This will increase efficiencies and promote better governance principles.

2.5 Privatisation and Restructuring of SOEs

The privatisation of SOEs brings with it numerous benefits, namely: improvements in deficit reduction; increased revenue for social projects; technology transfers; and efficiency gains resulting in improved delivery and economic performance.

The national government has failed to realise these benefits for the South African economy, however, by holding on to a collection of old-fashioned, and poorly run, state companies that span a range of sectors, from mining and media, to aviation and electricity.

Many of these SOEs also need regular bailouts and massive guarantees, which place strain on the fiscus. The DA proposes that the dynamism and professionalism of the private sector be injected into the operations of several SOEs by partly privatising them.

The part or full sale of state assets, especially through stock exchange listings, could partially fulfil some of the funding requirements of the infrastructure programme identified above.

This would help to create a good mix of debt and equity for the infrastructure-funding requirement, and bring down the cost of debt. In addition, breaking parts of the larger parastatals such as Eskom and Transnet into smaller units would diversify operational risk, provide valuable comparative information on performance and best practice, and help to promote efficiency and transparency through more activist boards.

By way of example, the potential "listed value" has been very conservatively calculated here based on a valuation using the SOE's net equity position (asset value less liabilities):

• SAA/SA Express: R2.9 billion
• 30% of Eskom's power generation capacity: R26.1 billion
• SABC: R850 million
• Denel: R654 million
• SAFCOL: R708 million
• Broadband Infraco: R1.6 billion
• Some Portnet activities (30% of port activities): R13.5 billion
• Some IDC assets: R9 billion
• Total: R 55.4 billion

This provides a small insight into the existing value in the state-owned sector. In reality, the amounts realised through proper listings of state assets would be far higher. Properly managed listings over the next decade, together with other, new funding arrangements discussed above, could help to boost infrastructure spending sustainably over the medium to long term.

To indicate the potential funding to be raised from privatisations (and confirm just how modest our net-equity valuations above are), consider the example of Brazil, our partner in BRICS, which has started to adopt a similar pragmatic approach by beginning a process of privatising its airports[5]. The sale of 51% of "Guarulhos", São Paulo's main international airport, earlier this month raised more than R70 billion. Now the government plans to sell controlling stakes in 66 airports around the country.

This process will bring in much needed private money for infrastructure upgrades, introduce efficiency gains and lead to improvements in management practices.

3     ECONOMIC GOVERNANCE

3.1  Money Bills Amendment Act

The Money Bills Amendment Procedure and Related Matters Act was passed in 2009. It is yet to be implemented.

This Act gives Parliament the power to amend the budget after it has been tabled and presented by the Minister of Finance (previously Parliament had only had the power to approve or reject the budget) and provides for the creation of a specialist Parliamentary Budget Office.

Under the Act, the power to amend the budget is split between the Portfolio Committee on Finance, the Appropriations Committee and the various Departmental Portfolio Committees.

The Money Bills Amendment Act therefore has the potential to significantly enhance the oversight role of Parliament and give effect to its rightful place as the legislative arm of government.

However, the Parliamentary Budget Office has not yet been established, which has delayed the implementation of the Act, and as such Parliament has not made use of its new powers.

The full implementation of the Money Bills Amendment Act is a matter of high priority for the DA.

Accordingly, the DA Shadow Cabinet will make full use of its membership of various departmental portfolio committees to push for amendments to the national budget in line with the proposals outlined in this document.

3.2 Exchange Controls

The current national administration has made overtures regarding the full dismantling of South Africa's apartheid-era exchange control regime, and has made some notable progress in this regard.

In 2008, then Finance Minister Trevor Manuel announced the removal of exchange controls on South African institutional investors and the implementation of prudential regulation of foreign exposures.

The controls on foreign currency transactions that had previously defined the exchange control regime were replaced by a system of reporting and monitoring of foreign exposures, as part of a broader framework for risk-based financial regulation and supervision.

In October 2011, the Reserve Bank announced that it would ease exchange control rules for individuals, making it easier to invest up to R5 million annually provided they adhere to certain ‘strict criteria'.

The Treasury also indicated that it would allow companies to top up capital in their offshore businesses, and relax rules for corporations that wish to invest outside their current business lines.

However, the full dismantling of South Africa's outdated exchange control regime is far from complete, and many restrictions remain. This ultimately limits the productivity and allocative efficiency of capital flows and adds unnecessary administrative burdens and transaction costs, which undermines our competitiveness.

3.3 The Informal Economy

Despite uncertainty as to how to accurately measure the size of the informal economy, estimates by both Statistics South Africa (Stats SA) and labour advisory firm Adcorp concur that the sector accounts for a significant portion of both employment and GDP.

Stats SA estimates that the informal sector accounts for roughly 5.6% of GDP and employs 2.34 million people. The agency estimates that this includes approximately 1.076 million informal enterprises. This is significant considering that individually, both the formal construction and agricultural sectors each account for less than 5.6% of GDP.

Adcorp believes that the informal economy accounts for a much larger portion of the economy, at 17.3% of GDP, with 6.2 million employed in the sector. The true number is likely to fall somewhere in between these two estimates.

The bulk of these small enterprises operating in the informal sector engage in cash transactions only, which are rarely, if ever, reported. They therefore do not pay taxes on their business activities, despite receiving services from the state. A recent Oxfam report found that this ‘tax gap' could be anywhere from R19.6 billion to R39.2 billion[6].

Finding ways to integrate the informal sector into the formal economy has the potential to benefit both government and informal enterprises.

There is reason to believe the sector could generate significant revenue for government by broadening the tax base. The informal sector would benefit by being able to access government SMME programmes, gain access to credit, and avoid potential exploitation by coming under the protection of the law.

How much revenue could the informal sector raise for the fiscus?

Oxfam estimates that government is missing out on between R19.6 billion and R39.2 billion in revenue. If as little as 10% of this sector is formalised we could see revenue gains of between R2 billion and R4 billion p.a.

The integration of the informal sector could already be happening. A recent research report by Bank of America Merrill Lynch on the South African informal sector suggests that a process of ‘formalisation' is occurring, but it is difficult to assess the extent of its impact.

Government could enhance this process, and ensure that informal businesspeople benefit from it, by providing incentives for formalisation, as well as:

• aggressive promotion of the limited tax amnesty for SMMEs below a specified level of assets;
• a tax education campaign;
• a radical simplification of the tax return and compliance burden; and
• the simplification of company registration and compliance requirements.

3.4 National Health Insurance

The National Health Insurance concept currently being considered by national government would, if implemented, threaten South Africa's long-term fiscal sustainability. This would have considerable negative impacts on the country's growth prospects, and ultimately threaten job creation and poverty reduction.

The model discussed in the NHI Green Paper indicates that resource requirements would increase from R125 billion in 2012 to R214 billion in 2020 to R255 billion in 2025 if implemented gradually over a 14-year period.

Total funds meant to be allocated to the NHI Fund would start with an allocation equivalent to 5% of GDP in 2012, growing to 7% of GDP by 2017, and thereafter rising to 8% by 2025.

The proposed budget trajectory indicates that very dramatic increases in service funding are proposed, beginning in the period 2012 to 2017, with increases at roughly 13% per annum in real terms and around 7% per annum in real terms thereafter to 2027.

The NHI proposal argues for an increase in public health expenditure from 3.4% of GDP to 8% of GDP by 2025.

The target percentage of GDP corresponds with existing estimates of total South African health expenditure and is related to the equity objective underpinning the proposal. Given this, the financial proposal is not really a costing analysis, but rather a phased budget proposal fitted to a 15-year timeline to 2025.

It should be noted that all costs given in the ANC working paper are in real terms, which means that the effects of inflation have not been included. Salary and wage increases running at 8.6% would push the health care budget to R860 billion in 2025. 

With a 6.0% increase per annum in the budget, plus the additional allocation to health care, the proportionate allocation of expenditure to health rises above 20%. No further details are available on the proportionate fall in government spending on education, law enforcement, housing and other soon to become lesser spending priorities.

Given South Africa's fiscal reality it is clear that, in its current form, the NHI is not feasible. If implemented, it would have a destabilising effect on our country's finances.

The DA's alternative model, which has been highly successful in the Western Cape, focuses on repairing and upgrading the existing public health system to provide high-quality healthcare that is accountable, affordable and efficient. We believe that, by strengthening the positive elements of the public health system and removing its deficiencies in a planned and sustained way, we can improve healthcare for everyone.

4  National Policy Context

4.1  National Development Plan

In November 2011, Minister Trevor Manuel launched the National Development Plan (NDP), a 444-page document that covers a broad range of themes and issues, from the economy to community safety, social security to the fight against corruption.

In all these areas the NDP outlines its interpretation of the fundamental challenges facing our country, based on empirical research, and offers a number of broad policy proposals.

We in the DA believe that many of the NDP proposals, particularly those that deal with job creation, education, infrastructure development and state capacity, point to an emerging consensus among progressive South Africans who want to see our country succeed.

It provides evidence of growing policy coherence between those determined to defend the values of the Constitution, across a range of political parties, and who understand that creating an enabling environment for growth is the only sustainable way to create jobs and lift people out of poverty. 

This is reflected in the NDP's emphasis on a ‘virtuous cycle of growth and development' and of ‘expanding the circle of opportunity', both of which are ideas that are rooted in the DA's philosophy of an Open Opportunity Society for All.

With their shared pragmatic, evidenced-based approach to policy and forward-looking orientation, we believe that commonalities in the NDP and the 8% Growth Project point to a ‘new normal' in South African public policy thinking.

4.2  New Growth Path

The New Growth Path (NGP) was launched by the Minister of Economic Development Ebrahim Patel in November 2010 with the stated aim of creating 5 million jobs in 10 years.

Although this aim is admirable, the NGP is premised on flawed assumptions about the role the state can, and should play in the economy, flaws that militate against it becoming an effective policy programme.

Two of the most significant of these deserve special mention here: the NGP's plan for a significant expansion of state participation in the economy into sectors such as mining and banking, and massive increases in state expenditure and public sector employment.

While the former ignores the reality of present state incapacity (its inability to manage state mining company Alexkor effectively is a prime example), the latter does not account for the fact that our national budget is already biased towards consumption expenditure at the expense of capital expenditure.

The DA agrees that rising inequality is one of the foremost challenges facing our economy and society. However, the NGP proposal that the salaries of senior managers and executives be capped at a certain level will only drive these skilled workers overseas. Inequality needs to be tackled by expanding the circle of opportunity to more people, not by driving away potential employers and entrepreneurs.

5  PROPOSALS FOR JOB-CREATING GROWTH

The 2009 recession hit South Africa hard. Over a million jobs were lost, and even after the economy returned to a positive growth trajectory; the recovery was not reflected in improved employment figures.

Increased government spending has, to a limited extent, provided relief through state employment programmes, and the size and cost implications of public sector employment has increased considerably.

However, the state cannot solve South Africa's crisis of unemployment in the long term. Only the rapid growth of labour-absorbing private sector industries can do this.

That is why the DA's budget proposals to boost job-creating growth focus on assisting people to gain the necessary skills and education to enter the job market, lowering the barriers to entry for new job-seekers, and incentivising on-the-job training by employers.

The centrepiece of our job-creating growth strategy is a comprehensive youth wage subsidy programme to lower the barriers to entry in the labour market by providing firms with a financial incentive to employ more people.

Finance Minister Pravin Gordhan has committed to rolling out such a programme in April this year. However, it seems that Cosatu is refusing to discuss the policy at Nedlac, meaning that it has effectively been deadlocked and that the 1 April implementation date is likely to be missed.

The DA believes the youth wage subsidy is critical for opening opportunities to young job seekers, and lowering barriers to entry in the labour market.

We will monitor the situation, and put pressure on government to follow through with its commitment to launch the programme in April.

5.1 Opportunities to Reach More People

1.  Implement a Youth Wage Subsidy Programme

Introduce a comprehensive Youth Wage Subsidy to open opportunities to young job seekers, and lower barriers to entry in the labour market.

Already budgeted for in 2011 National Budget to the tune of R5 billion over three years

2. Up-scale the EPWP

Up-scale the Expanded Public Works Programme (EPWP) by 500 000 people on contract basis to work on infrastructure projects, with a view to expanding the programme to reach 2.5 million people by 2014.

Additional expenditure: R3 billion

5.2 Improve Education Access and Outcomes

3. Expand National Student Financial Aid Scheme (NSFAS)

Expand the budget and scope of the NSFAS so that more young South Africans can access higher education.

Additional expenditure: R500 million

4.    Holiday Training Workshops for Teachers

Introduce holiday training workshops for teachers to improve literacy and numeracy teaching skills, based on the model successfully implemented in the Western Cape.

Additional expenditure: R115.8 million

5. Build Additional Classrooms

Build additional classrooms at high-performing schools to expand quality education to learners from disadvantaged backgrounds.

Additional expenditure: R300 million

6. Bursary Scheme for Talented Learners

Institute a nationwide bursary scheme to assist 50 000 academically talented learners from low-income families to access high-quality school education with a view to expanding the programme to an additional 20 000 learners each year.

Additional expenditure: R 650 million

7. Scarce Skills Allowance for Teachers

Introduce an allowance that will supplement the salaries of teachers who possess scarce subject knowledge or who produce excellent results in poor schools.

Additional expenditure: R193 million

8. Build Specialist Maths and Science Schools

Establish additional specialist maths and science schools with bursaries for disadvantaged learners, based on the STEM centres in the Western Cape.

Additional expenditure: R450 million

5.3  Develop Professional Skills

9. Reimburse Employers' Training Costs

Reimburse employers to the value of the full amount spent on approved training, including schemes administered by employers' associations.

Revenue reduction: R3 billion

10.  Implement Government Internship Programme

Introduce a comprehensive government internship programme across all departments, based on the highly successful Western Cape model.

Additional expenditure: R21.6 million

6 PROPOSALS FOR INCLUSIVE GROWTH

Redressing the legacy of apartheid, which prevented black South Africans from accumulating wealth and accessing opportunities, is a central imperative for the DA.

The current structure of our economy leaves millions of poor South Africans excluded from the mainstream because they lack access to opportunities and capital.

Tackling both these challenges head-on is the objective of our second priority area: ‘inclusive growth'.

Until now, national government's approach to providing redress has focused on ownership, which has tended to benefit only the politically connected few, and the extension of welfare services, the success of which has been hampered by an incapacitated state.

We believe that business as usual won't suffice, and that government can do much more.

Our budget proposals therefore place special emphasis on ‘capitalising the poor' - that is, making it easier for poor South Africans to acquire assets - while allocating additional resources to promote broad-based empowerment, and improving health and welfare.

6.1  Enhance Broad-based Empowerment

11.  Tax incentive to promote employee share ownership

Declare 50% of the value of shares awarded to qualifying employees (above the existing limit of R50 000 over five years under s8B of the Income Tax Act, and up to a maximum of R100 000 including the existing R50 000) to be tax deductible to the employer, and exempt the full value, and any eventual gain, from income tax. This will help to incentivise the adoption of employee share ownership schemes.

Additional expenditure: R300 million

12.  Extend Share Ownership Principles to Unlisted Firms

Introduce an employee bonus scheme for unlisted firms that replicates existing share incentive regimes for listed entities. This would apply to a maximum R50 000 bonus payable after five years, and would exclude directors, shareholders and relatives of directors and shareholders, and any employee already participating in a share scheme in that company. The bonus would be partially tax free, in a ratio that is linked to growth in an appropriate share index over the five-year period.

Additional expenditure: R750 million

13.  Farm Equity Scheme Fund

Establish a dedicated fund to support Farm Equity Schemes (FES), which will facilitate empowerment in the agricultural sector through a broad-based approach to farm ownership. This model has been successfully implemented in the Western Cape.

Additional expenditure: R750 million

6.2  Capitalise the Poor

14.  Tenurisation Project

Outsource a tenurisation project to work on a strategy to transform informally occupied plots of land into formally held legal title.

Additional expenditure: R5 million

15.  State Land Audit

Conduct a comprehensive audit of all state and communal land.

Additional expenditure: R50 million

16.  Make Property Cheaper for First-Time Buyers

Abolish all transfer duties on land transfers for all first-time, owner-occupied residential purchases of under R2m, as well as for purchases by over 65-year-olds.

Additional expenditure: R32 million

17.  Budget Increase for Land Reform

Increase the allocation for the land reform programme by R10 billion over the next three years.

Additional expenditure: R3.1 billion

18.  Budget Increase for Land Claims Commission

Allocate additional resources to the Land Claims Commission to allow better monitoring of land reform processes.

Additional expenditure: R200 million

19.  Housing Subsidy Voucher

Introduce a programme of subsidy vouchers that will allow recipients greater flexibility in choosing the low-cost housing option that best suits their needs and incentivises "self-help".

Additional expenditure: R600 million

20.  Sustainable Building Materials

Introduce a policy of using alternative, cheaper, more sustainable building materials in state-funded housing projects.

Total savings: R240 million

21.  Subsidies for the ‘Gap' Housing Market

Introduce a R1.2 billion subsidy programme aimed at low-income individuals who do not qualify for RDP housing in which the state will assist people in gaining access to bank loans.

Additional expenditure: R200 million

22.  Serviced Plots Programme

Roll out a nationwide programme to deliver serviced plots so that service delivery reaches more people.

Additional expenditure: R1.2 billion

23.  Incentivise savings

Interest earned should be tax free up to R50 000 or 5% of taxable income per year, whichever is the higher.

Revenue reduction: R150 million

6.3 Deliver Improved Health and Welfare

24.  Abolish Means Test for State Pensions

Abolish the means test for the State Old Age Pension (SOAP) and provide a universal old age pension available to all South Africans.

Additional expenditure: R3 billion

25.  Establish an SA Sports Academy

Establish a world-class South African Sports Academy to foster excellence and expand opportunities, along the lines of the Mass participation, Opportunity and Development (MOD) and Sport, Health, Advancement through sport, Research and Policy development (SHARP) centres in the Western Cape.

Additional expenditure: R750 million

26.  Fill Healthcare Vacancies

Make significant progress towards filling vacancies in public healthcare.

Additional expenditure: R2 billion

27.  Incentivise Giving

Amend Section 18A of the Income Tax Act to make it easier to make donations to public benefit organisations (charities) by doubling the limit from 10% to 20% of taxable income.

Revenue reduction: R500 million

28.  Free Public Transport for Pensioners

Provide free public transport for pensioners and unemployed persons on local commuter train and bus services outside of peak hours

Additional expenditure: R700 million

29.  More Social Workers

Allocate additional resources to employ more social workers and counsellors, and purchase or lease additional safe houses.

Additional expenditure: R291 million

7 PROPOSALS FOR COMPETITIVE GROWTH

Enhancing the international competitiveness of the South African economy is crucial if we are to attract investment, increase productivity, drive innovation and bring down prices for consumers.

Many sectors in our economy are world class. According to the World Economic Forum Global Competitiveness Report, the regulation of our securities exchanges and the soundness of our banks rank number one and two in the world, respectively.

The efficiency and innovation of South Africa's businesses and entrepreneurs must be encouraged, not stifled by red tape and an overbearing government.

At the moment, dominance in some sectors by relatively few large firms and the promotion of a crony elite under the guise of a so-called ‘China model' of state capitalism pose a threat to small businesses and consumers, resulting in ever increasing costs.

To counter this, we need to encourage greater competition within the domestic economy while simultaneously fostering the competiveness of individual South African firms.

A key proposal in this section is for the creation of a National Venture Capital Fund, which will provide investment capital to create and grow start-up or early-stage businesses (see below). The fund would be administered by the Industrial Development Corporation, and would allow private investors to co-invest in start-up projects.

The aims of the DA budget proposals that follow are to make it easier and safer to do business in our country, enhance productivity and innovation, improve the quality of government, and bring down the cost of living for South African consumers.

7.1 Encourage Greater Competition

30.  Increase Budget for Consumer Commission

Increase the budget allocation for the National Consumer Commission.

Additional expenditure: R65 million

31.  Increase Budget for Competition Authorities

Increase the budget allocation for the Competition Commission and Competition Tribunal and allow them to keep 10% of fines levied to expand their operations.

Additional expenditure: R52.4 million

32.  Government Graduate Recruitment Programme

Develop a formal graduate recruitment programme for the public service, featuring a basic entrance examination and a highly competitive ‘fast track' stream.

Additional expenditure: R105 million

33.  Replace IPAP2

Replace the current Industrial Policy Action Plan 2 (IPAP2) with a streamlined Industrial Development and Growth Strategy (IDGS) which promotes new, labour-intensive activities such as new technologies, kinds of training, or goods and services, instead of sectors.

Total savings: R152.7 million

34.  National Venture Capital Fund

Establish a National Venture Capital Fund to provide investment capital to help early-stage businesses to grow.

Additional expenditure: R700 million

35.  Budget Increase for Broadband

Increase budget allocation for investing in broadband infrastructure.

Additional expenditure: R1 billion

36.  Corporate Tax Regime

Reduce the corporate tax rate to 27% with a view to reducing it to 25% in the medium term.

Revenue reduction: R5.7 billion

37.  Legalise online gambling

Legalise online gambling and issue operating licenses to operators.

Additional revenue: R200 million

7.2 Make it Easier and Safer to do Business

38.  Business Voucher Conditional Grant

Introduce a Business Voucher Support Programme (BVSP) conditional grant to assist municipalities to offer support services to start-ups and SMMEs

Additional expenditure: R600 million

39.  Abolish Estate Duties and Donations Tax

Introduce a tax break for individuals to incentivise investment.

Revenue reduction: R1040 million

40.  Cash flow assistance for small businesses

Introduce a three-year Tax Loss Carry-back for businesses with turnover of less than R5m. This would allow a small cyclical business to recoup a loss by setting it off against a prior year's profit. As an elective alternative, declare that a tax credit that derives from an assessed loss (which hasn't been claimed as above) can be set off against VAT payable. This will terminate at the commencement of the year following that in which the taxpayer's estimate of tax for the second provisional payment exceeds R5m.

Revenue reduction: R240 million

41.  Drugs and Gangs Units

Establish specialised police units focusing on drug and gang-related crime.

Additional expenditure: R970 million

42.  Marine and Environmental Units

Establish specialised police units focusing on marine and environmental crimes, with a focus on poaching and trade in illegal animal products.

Additional expenditure: R392.8 million

43.  More SAPS Officers

Employ an additional 15 000 SAPS officers, with a view to growing the total personnel contingent to 250 000 by 2014 (from the current 190 000).

Additional expenditure: R1.35 billion

44.  SAPS Legal Services

Invest additional resources in the SAPS legal services.

Additional expenditure: R500 million

45.  Crime-monitoring IT System

Develop a user-friendly IT system that makes ‘real-time' crime data easily accessible to the public.

Additional expenditure: R120 million

46.  Prison Transfers and Electronic Tagging

Fast-track prison transfer agreements and introduce electronic tagging.

Total savings: R1 billion

47.  Build More Prisons

Increase correctional services capacity by allocating additional resources to build more prisons.

Additional expenditure: R1 billion

48.  Reinstate the Scorpions

Reinstate the Scorpions to fight fraud and corruption.

Additional expenditure: R50 million

49.  Employ more Prosecutors

Employ 200 more prosecutors to beef up the criminal justice system, expedite case processing and reduce backlogs.

Additional expenditure: R86.9 million

50.  VictimLink Service

Establish a 7-day-a-week, 24-hour VictimLink service to assist people who have been raped or assaulted.

Additional expenditure: R15 million

51.  Employ 15 000 More Detectives

Employ an additional 15 000 detectives to improve the efficiency and quality of criminal investigations.

Additional expenditure: R4.072 billion

52.  More Forensic Science Labs

Build more forensic science laboratories so that the following functions are enhanced: document analysis, chemistry testing, biology sampling and ballistics testing.

Additional expenditure: R800 million

53.  Metal Detectors at Stations

Introduce walk-through metal detectors at all ‘nodal point' train stations to improve safety for commuters and thereby encourage the use of public transport.

Additional expenditure: R100 million

54.  Metal Theft Conditional Grant

Introduce a conditional grant for municipalities to establish dedicated Metal Theft Units, based on the ‘Copperheads' in Cape Town.

Additional expenditure: R50 million

8 PROPOSALS FOR STRATEGIC GROWTH

How we position South Africa as a leading economic power in the developing world, build beneficial relationships with our trading partners, access new markets, and manage our limited resources to maximise growth through investment in infrastructure, are all pivotal strategic considerations.

Currently, trade with the African continent is hampered by high costs, complex customs procedures, and poor transport infrastructure. We have also not done enough to diversify into emerging markets.

Getting trade strategy right requires that we invest more in rail and port infrastructure, and allocate additional resources to measures that will assist South Africa consolidate our position on the continent, and deepen our relationships with key emerging economies, which together will account for 75% of global GDP by 2015[7].

It also means being proactive in the way we champion the cause of South African companies and entrepreneurs on the global stage through smart bilateral and multi-lateral trade diplomacy.

Budgeting to promote strategic growth means spending more where it is needed, but also cutting back where wasteful and unnecessary spending threatens our long-term fiscal sustainability or doesn't contribute to growth.

The DA therefore proposes cuts for some departments, amalgamation and rationalisation for others and the disbanding of entities that serve no clear function.

8.1 Promote Growth through Strategic Spending

55.  Road Maintenance Investment

Invest an additional R15 billion p.a. for the next six years on road maintenance and improvement.

Additional expenditure: R10 billion

56.  Public Transport Inspectorate

Create an Inspectorate of Public Transport that will focus on conducting safety inspections of busses, trains and taxis.

Additional expenditure: R22.5 million

8.2 Eliminate waste and streamline government

57.  New Ministerial Handbook

Adopt a ‘No Frills' Ministerial Handbook for the National Cabinet, based on the Western Cape example.

Total savings: R500 million

58.  Cut down on Wasteful Expenditure

Make significant progress towards reducing the R20 billion in wasteful and fruitless expenditure identified by Auditor General Terence Nombembe.

Total savings: R4 billion

59.  Outsource Non-core Functions

Have government departments outsource non-core functions such as catering and cleaning services to private contractors.

Total savings: R1 billion

60.  Expand Public Transport

Increase budget allocation to public transport networks for expansion and maintenance.

Additional expenditure: R1.5 billion

61.  Disband the DoWCPD

Disband the Department of Women, Children and People with Disabilities.

Total savings: R130 million

62.  Disband the DoED

Disband the Department of Economic Development.

Total savings: R674 million

63.  Rationalise DTI Communications

Amalgamate the Department of Trade and Industry's departments of communications, brand management and media relations.

Total savings: R75 million

64.  Introduce Activity-Based Costing

Introduce Activity Based Costing (ABC) as a pilot project in four government departments to reduce costs and wastage, and promote efficiency. The four departments are: the Presidency, International Relations and Cooperation, Arts and Culture, and Correctional Services. This will promote efficiency and reduce waste by requiring that initiatives undertaken and policies approved in these departments be thoroughly costed before they may be approved.

Total savings: R552.7 million

65.  Curtail Government Wage Bill

Limit the total increase in the Government Wage Bill to the inflation rate, with differential pay increases determined by performance.

Total savings: R732 million

66.  Disband the Public Service Central Bargaining Chamber

Disband the Public Service Central Bargaining Chamber to promote flexibility in wage negotiations and enhance accountability.

Total savings: R25.3 million

67.  Disband SETAs and the NSA

Disband the Sector Education and Training Authorities (SETAs) and the National Skills Authority.

Total savings: R8.54 billion

68.  Disband the NYDA

Disband the National Youth Development Agency.

Total savings: R405.1 million

69.  Cut the VIP Security Bill

Cut down on VIP security where credible intelligence suggests current resource allocation is unnecessary.

Total savings: R200 million

70.  Reduce the Presidency Budget

Reduce budget allocation to the Presidency.

Total savings: R115.86 million

71.  Reduce the Secret Service Budget

Reduce the budget allocation for the Secret Service.

Total savings: R2.75 billion

72.  Reduce Use of Consultants

Significantly reduce the use of consultants in all government departments, and in all spheres of government.

Total savings: R1.95 billion

73.  Privatise Hospital Management

Privatise the management functions of every public hospital and clinic, with strict annual reviews to ensure quality.

Total savings: R1 billion

74.  Disband the DoSR

Disband the Department of Sport and Recreation.

Total savings: R852.3 million

75.  Disband the DoPW

Disband the Department of Public Works.

Total savings: R200 million

76.  Do away with District Municipalities

Do away with district municipalities and re-allocate their responsibilities and functions.

Total savings: R500 million

77.  Create a Single Ministry of Natural Resources

Create a single Ministry of Natural Resources and Heritage that would incorporate the following portfolios: Minerals, Energy, Environment, Water, Forestry and Tourism.

Total savings: R300 million

78.  Create a Single Ministry of Education

Create a single Ministry of Education by merging the current Ministries of Basic Education and Higher Education and Training.

Total savings: R250 million

79.  Merge the DPSA and CoGTA

Merge the competencies of the current Ministries of Public Service and Administration and Cooperative Governance and Traditional Affairs.

Total savings: R363.1 million

80.  Utilise Unallocated Funds

Make use of unallocated funds in the National Budget.

Additional revenue: R4 billion

81.  Cut Subsidies to Communications Entities

Reduce subsidies for communications entities (SABC, Post Office, Sentec etc.)

Total savings: R500 million

8.3 Promote South African Trade

82.  Additional Consulates Focused on Trade

Open additional consulates in Shenzhen (China), Bangalore (India), Rio De Janeiro (Brazil), and Istanbul (Turkey).

Additional expenditure: R62 million  

83.  Increase DTI Trade Programme Budget

Increase budget allocation for the Department of Trade and Industry's International Trade Administration Programme.

Additional expenditure: R32.8 million

84.  SA National Peace Corps

Establish a South African National Peace Corps (SANPC) to provide development assistance to the continent.

Additional expenditure: R150 million

9  PROPOSALS FOR SUSTAINABLE GROWTH

If economic growth is going to make a real difference to people's lives by creating jobs and opening opportunity and prosperity for generations to come, it needs to be sustainable in the long term.

That means ensuring that we have the energy to power 8% growth, and that we manage our environmental resources so we do not cut short our future socio-economic development. Transitioning to a low carbon economy is therefore a critical component of sustainable growth.

At present, however, South Africa relies too heavily on fossil fuels. We face an energy supply crisis as a consequence of poor planning by successive ANC administration (the result of which is rising energy prices which hit the poor hardest) and next to zero reserve freshwater capacity.

Budget priorities for achieving sustainable economic growth include investing heavily in freshwater infrastructure, providing incentives to encourage the development of alternative sources of energy, and planning for climate change.

9.1 Plan for Climate Change

85.  Climate Change Adaptation Scheme

Establish a dedicated climate change adaptation grant scheme to assist farmers to adapt to warmer temperatures and lower rainfall occasioned by global warming.

Additional expenditure: R50 million

86.  Solar Water Heater Support

Provide assistance for local solar water heater manufacturers by waiving the SABS testing fees; allowing individual component testing by SABS; and introducing a 50% differential rebate over imported systems.

Additional expenditure: R1 billion

87.  Building Retrofit Fund

Introduce a National Building Retrofit Fund administered by the new Department of Natural Resources. The Fund will provide bridging finance to private sector companies to retrofit large buildings financed by the savings on their electricity bills. The retrofit will focus on upgrading air conditioning, heating, insulation, lights, glass and geysers & water heaters based on an audit of potential savings.

Additional expenditure: R2.5 billion

9.2  Manage Our Resources

88.  Phase 2 of LHWP

Initiate the completion of Phase 2 of the Lesotho Highlands Water Project (LHWP) to ensure South Africa's future water security.

Additional expenditure: R1 billion

89.  Water Treatment Facilities

Increase budget allocation for maintenance and expansion of water treatment facilities.

Additional expenditure: R1 billion

90.  Expand Electrification Programme

Revise the national electrification plan to ensure 95% coverage by 2020 and 100% coverage by 2030.

Additional expenditure: R400 million

ANNEXURE 1

BUDGET TABLE

ANNEXURE 2

OVERVIEW OF THE 8% GROWTH PROJECT

Diagnostic Assessment

In November 2011, the DA launched the first phase of the 8% Growth Project, the party's practical policy agenda to grow the economy and make the goal of an Open Opportunity Society for All in South Africa a reality.

This took the form of a study titled Achieving 8% Economic Growth: The DA's Diagnosis of the Problem, which set out twelve sets of growth impediments that need to be addressed if South Africa is to achieve the economic performance required to create jobs and reduce poverty on a sustainable basis.

The second phase, which seeks to identify effective policy solutions to these problems, is currently underway.

The diagnostic notes that, with growth rates averaging 8%, successful middle-income countries such as Brazil, Turkey and Malaysia have seen unemployment rates plummet.

In these and other high-growth developing countries, poverty rates have declined significantly as increased revenue, generated from this new wealth, has been ploughed into intelligent social security programmes that assist the poor and incentivise education, skills acquisition and social development.

We can match these achievements. South Africa is rich in mineral resources. Our private sector is world-class, and we play a prominent role on the international stage as the largest economy in Africa, and more recently, as a member of the BRICS group of countries.

Holding us back, however, is a national administration that lacks a coherent vision for the economy and prioritises pay-offs to its leftist allies over the interests of the majority of South Africans.

The findings from the DA's diagnostic assessment focus on twelve key areas. These are:

• Low demand for labour limits opportunity, particularly for young and low-skill job seekers.
• There is a skills shortage which hampers expansion and innovation.
• Our crumbling infrastructure negatively impacts on transport and logistics, which places a significant constraint on growth.
• High financial and regulatory barriers discourage entrepreneurs from starting new enterprises or expanding existing operations.
• A lack of access to capital assets means the poor are excluded from fully participating in the economy.
• Competition in the economy is hampered by monopolies and creeping state dominance.
• The social security system lacks innovations that would help the fight against poverty.
• Engagement with strategic markets in Africa is insufficient.
• Current BEE and EE models benefit only the few and don't further the aims of genuine broad-based empowerment.
• Industrial policy is complex and ineffective, and relies too heavily on ‘top-down' state direction.
• Government spending prioritises short-term consumption over sustainable long-term growth.
• Crime imposes high risks and costs, which discourages investment and fuels emigration.

The 8% Growth Project will seek to provide effective, cogent policy solutions to these problems, and position the DA at the forefront of economic policy debates in South Africa.

Policy Development Process

The second phase of the 8% Growth Project is currently underway and involves a comprehensive policy development and review process. This will culminate in a full set of policy proposals that will be considered and adopted at a specially convened Federal Congress in November 2012.

Placing 8% economic growth at the centre of our policy agenda will ensure that the DA moves towards the 2014 election as the party of real change and prosperity for all South Africans.

The policy development process involves three key sets of actors. The first is an in-house policy staff component and a ‘core group' of DA public representatives from all three spheres of government: national, provincial and local. Together, this group has considerable first-hand experience working on economic policy.

The second group involves an ‘expanded' policy cluster within the party whose diverse portfolios (such as energy and the environment) have an important bearing on the economy. The third set comprises a network of economic policy experts from South Africa and around the world.

The first set of draft proposals has already been completed, and was subject to rigorous analysis and review at a policy meeting held in January this year. A revised set of proposals is being drafted, which will be workshopped through the party's structures and with experts and civil society as part of a country-wide policy road show, which will be held during the first half of the year.

Through this process, we will seek to engage with as many communities as possible, and ensure that this policy platform is reflective of the concerns, hopes and ambitions of all South Africans.

Towards 2014

The 8% Growth Project is the DA's plan to grow the economy at 8% per annum, create jobs and halve poverty. Once the policy proposals have been reviewed, debated and revised, they will become official DA policy. It will become our blueprint for South Africa's future.

Unconstrained by the ideological baggage that impedes good policy-making in ANC-run administrations, the 8% proposals will be implemented where we govern and form the basis of our promise to voters in 2014.

Many of the 8% policy proposals are designed to be implemented at provincial and local government levels. The Western Cape Government and the City of Cape Town, and other DA-led administrations around the country, will therefore be key partners in realising this vision of a virtuous cycle of growth and development.

As more and more provincial and local governments come under DA control, the outcome of this vision - the Open Opportunity Society for All - will reach more and more people. This is our promise to voters in 2014, when the DA plans to extend its effective governance model into more provinces and cities across the country.

8% proposals that require national competency, such as determining the national budget or making changes to national legislation, will shape the DA's position in Parliament, which we believe should be at the centre of national policy debates.

These proposals will also lay the foundation for our plans to lead a national government in 2019.

Footnotes:

[1] Contrary to popular belief South Africa's flagship reform project of the nineties, the Growth, Employment and Redistribution programme (GEAR), was only half implemented. Budget reform, deficit reduction, consistent monetary policy and trade promotion were all achieved. But collective bargaining reform, tax incentives, restructuring of state assets, training upgrades and a nation-wide infrastructure programme have either not been implemented or have been totally or partially blocked by powerful factions in the Tripartite Alliance.

[2] CDE, A Fresh Look at Unemployment (June 2011), p13

[3] IMF Working Paper, Economic Growth and Poverty Reduction in Sub-Saharan Africa (2001), p7

[4] data.worldbank.org accessed on 24 August 2011

[5] ‘Privatising Brazil's Airports: Fasten Your Seatbelts' in The Economist (11/02/2012)

[6] Itriago, D. Progressive Taxation: Towards Progressive Tax Policies, Oxfam Research Report (September 2011), p54

[7] ‘Contribution to world GDP growth' in The Economist (22/04/2010)

Issued by Tim Harris MP, DA Shadow Minister of Finance, February 20 2012

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