ACDP broadly supports important medium term budget policy statement, given global economic uncertainties and domestic challenges

ACDP MP and member of the Standing Committee on Finance, Steve Swart, today expressed broad support for the medium term budget policy statement announced earlier today by the Minister of Finance, Pravin Gordhan.

“The ACDP broadly supports this important medium term budget policy statement, which gives an indication of government income and expenditure over the next three years.  The Minister of Finance, Pravin Gordhan, has not departed from government’s prudent counter-cyclical fiscal policy, which is now firmly aligned with the National Development Plan, providing policy certainty. This notwithstanding the uncertain global economic outlook, as well as domestic challenges arising inter alia from strike action in the mining, motoring and transport sectors. The statement sends a very clear message to reassure investors and credit rating agencies that National Treasury will not deviate from its trademark fiscal conservatism, notwithstanding political pressure from various quarters.

The weaker global economic outlook, together with the fall-out from the strikes, however, negatively impacted domestic economic growth forecasts, with growth being revised downwards to 2.1 % of GDP from the earlier forecast of2.7%. Slower growth means lower tax revenues, with SARS expected to be hard-pressed to meet its target of R895bn this year. Additionally, the risk of unwinding quantitative easing in the US will impact emerging markets, like South Africa, which relies heavily on external funding to fund the trade account deficit. We need to continue increasing exports where the country has natural endowments and comparative advantage, such as in mining and manufacturing to counter this risk. In view of Cosatu’s opposition to the NDP, as well as the impact of strike action on the economy, the Minister should challenge Cosatu to produce proposals that recognise the seriousness of SA’s economic difficulties, and take on the responsibility of taking their members on board.

We note, however, that the estimated budget deficit of 4.2% for this financial year is lower than the February forecast of 4.6%, and that this trend continues over the medium term.

The ACDP had previously expressed its concerns about the budget deficit, projected state debt stock and spiralling debt service costs. We thus welcome the fact that the fiscal consolidation path is on track to reduce the budget deficit to 3.0% by 2016/17. The size of the budget deficit at present results in debt service costs rising faster than any other category of spending over the medium term, which crowds out spending on developmental priorities. The norm for emerging-market countries is that government debt should not exceed 40% of GDP, and we are fast approaching that mark, albeit that this compares very favourably to developed countries whose debt-to-GDP figures are substantially higher.

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

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

It is also crucial to ensure that value is obtained for every rand spent. The Minister has stated that he will continue reducing government expenditure and wastage by reviewing programmes and addressing corruption, wasteful and irregular spending. It is unacceptable that up to R30bn of theannual state procurement budget is misappropriated. This is probably only the tip of the iceberg and greater urgency is required. We look forward to the cost-containment instructions that will be issued with the 2014 Budget to limit public sector costs such as air-travel, accommodation, ect.

While the ACDP supports the medium term budget policy statement in broad terms, we will be closely scrutinizing the proposed fiscal strategy, including proposals to reduce the deficit and the projected state debt levels. We need to also ensure that the widely accepted NDP is implemented without delay.