Parliamentary Caucus

Debate on the Medium Term Budget Policy Statement by Mr Thaba Mufamadi (ANC)

20 November 2012

Honourable Speaker
Deputy President
Minister Gordhan and
Deputy Minister Nene
Ministers and Deputy Ministers
Honourable Members
Director General in the National Treasury

Honourable Speaker, as we introduce the debate on the proposed Budget Frame Work for 2013, we do so within the global economic environment that remains uncertain with most of the countries facing a common thread of challenges with specific grievances that varies from country to country.

Most emerging economies today, suffer from a common economic deficit and the confluence of external (exogenous factors) and internal (domestic) economic challenges characterised by slow growth, unemployment, poverty and inequalities between the rich and the poor.

Honourable Members, it is this growing social distance that undermines global social cohesion. To attain social cohesion and economic barriers:

• Communities need to be assisted overcome social and economic barriers to achieve social cohesion.

• Labour needs skills to function in a global environment but also leadership to champion and protect their interests on the factory floor; and

• Governments world over needs policies to combat the triple challenges of an economic system that continues to produce youth unemployment, poverty and inequalities.

While we understand the extend to which the external challenges imposes to many developing nations as a result failures developed economies, particularly the USA and Europe, the challenges is underpinned by our unique circumstances, the confluence of both exogenous and endogenous factors.

The recently released 2011 Census results aptly depicts or captures the challenges we have to respond to in the next Medium Term Expenditure Framework (MTEF) period. Census results tell us a story, a journey we have travelled as a people to advance the nation to a just, fair and equitable economic system to promote the creation of a non-racial democratic and prosperous society.

Honourable Members, Census 2011 again tells us a story of an economic system that is less efficient in the redistribution of wealth. An economic system that has failed the majority of our people, Blacks in general and Africans in particular. Most dangerously, an economic system that increasingly gives less job prospects to young people.

Therefore, the Census results implore us to imagine new economic solutions for a better future, it also obliges us all to realize the importance of sustainable economic growth over a longer period for wealth creation but most importantly which will then ensure job creation as a fundamental base for wealth distribution.

Honourable Speaker, it is highly critical that the Medium Term Budget Policy Statement deliberations takes full cognizant of the challenges and successes we have made in the past two decades as revealed by the 2011 Census Result.

The result is not just about the population growth but it also reveals startling information of how far we have created a society that has become so highly unequal:

• Equally, the results tell us a story of a resounding success particularly in education and health.

• “An economic system that has entrenched income inequalities/disparities between black and white.

• A story of “we have never had it so good like this before”.

• Dit is lekker my kind, ja dit is lekker vir julle mense, dit is hoekom julle ons maar kan vloek, dit is hoekom die lede van die opposiesie party, spesifiek Mevrou Helen Zille, sonder `n uitnodiging by die President van die Republiek se privaate woning kan gaan toyi-toyi. En niks gebeur daaroor. Dit is lekker vir julle, lekker vir julle!! Yes, it has been so nice for some.

Honourable Speaker, in our comfort and discomfort, the key question confronting us now is, what will the price be to reverse inequalities in our society and the unintended consequences?

Honourable Speaker, history has taught us that there are moments in life when people rise to remind their leaders that something is not right and change is needed. Change in the world economic system is needed, for it has failed the majority of the world citizens.

It has eroded the very fabric of the universal fairness of equality and redistribution.

Every citizen has a right to participate in the economic system to earn a living

Today we are called upon to conclude the cycle which began in February with the tabling of the 2012/13 Budget.

Fiscal policy guides government`s decisions about revenue, spending and borrowing. South Africa’s fiscal policy enables government to deliver on its developmental mandate by providing resources in a manner that is sustainable and that reinforces the stability of the economy.

Mr Speaker, as we all know, budget is a function of economic growth that underpins sustainable developmental goals of governments. Therefore, this MTBPS has based its proposals on the assumptions of how the economy might perform globally and locally.

Let me use this occasion to remind ourselves where we started. We said in the Fiscal Framework and Revenue Proposals debate on the 6th March 2012, that the Budget is about growth, job creation, infrastructure investment, education, health and better service delivery.

In that debate we outlined that growth was not just about the pursuit of faster growth with development, it is about the creation of more equitable future, through investing in the economic and social infrastructure.

We have had the opportunity during the public hearings to listen and engage on the proposed Revised Fiscal Framework for 2012/13 as well as for the next three financial years’ and the assumptions underpinning the fiscal framework within the context of the global and domestic economy with various stakeholders such as BUSA, FFC, etc. .

Honourable Members, the domestic economic outlook reflects that economic growth for this year has been revised downwards from the Budget forecast of 2, 7% to 2, 5%. In addition our budget deficit has been revised upwards to 4, 8% of GDP from 4, 6% largely due to lower tax revenue. This in itself is not particularly high given the developmental challenges we face. The real growth in expenditure averages 2, 9% over the MTEF.

The counter balance is that the public-sector infrastructure investment and the activation of new electricity-generating capacity are likely to see medium term growth.

Primarily the obstacles to faster and a more inclusive economic growth are to be found in the structure of our economy. These are the challenges in the labour market, the real costs of energy, delivery inefficiencies, skills mismatch and the demands of industrialisation and the need for far greater emphasis on beneficiation as opposed to export extraction.

Above all our economy must tackle the reproduction of inequality through bold and decisive interventions.

What exacerbate the weakening of the global economy are the conservative and narrow monetary policies that are being adopted in the Euro zone. Uncertainly about the resolution of the European sovereign debt and the crises in financial institutions, who themselves are largely to blame for what has happened, remains the greatest source of volatility and uncertainty. This has weakened our global demand for South Africa exports, pushed up volatile capital flows which is harmful to our domestic economy and had a negative impact upon currencies and commodity prices.

With regards our fiscal framework our approach remains rooted in the economic theory of a countercyclical approach to managing revenue and expenditure. The present fiscal framework continues the trajectory of attempting to balance efficiency and equity objectives and to provide a cushion against global volatility and declining economic growth internationally. Focus is maintained on expanding the social wage, while accelerating infrastructure investment and service provision.

The revised fiscal framework is contextualized by cushioning the domestic economy from the global crisis as a key objective. Fiscal discipline is encouraged and growth in real non-interest expenditure will average 2, 9% a year over the next three years compared with an annual average of 8% between 2002-03 and 2001-12.

This approach is brought about by declining revenue generation of some R5Billion. Expenditure will be curtailed over the MTEF period so as to release money for greater productive use. Debt servicing remains a priority and the cost of servicing the debt has grown rapidly.

The fiscal framework`s key pillars are building a large social safety net; infrastructure investment as the road to economic growth and job creation and stimulating manufacturing through incentives. The fiscal framework is focused on directing the economy towards infrastructure development, economic competitiveness and health and education services.

Looking forward over the MTEF South Africa`s fiscal stance is set to target medium term consolidation with moderate expenditure growth. Further it seeks to stabilise government debt and improving outcomes by shifting the composition of spending from consumption to investment.

Speaker in drawing to conclusion the Committee`s view was that global economic outlook remains uncertain and that the domestic economic growth would be expected to remain moderate, with recovery in economic growth in the outer years to create jobs, boost revenue, and eventually reduce debt levels and budget deficits.

The pathway of economic transformation necessitates a coherent and effective approach, working together in partnership in order to free our people from poverty and unemployment. We need a major up-scaling of our efforts towards economic transformation consistent with our vision of a better life for all.

We have to consolidate and put economic transformation at the centre of development recognising that we cannot achieve social cohesion and sustained economic development unless we create an economy that provides opportunities for more South Africans to engage productively.

The ANC supports the 2012 Medium Term Budget Policy Statement

I Thank You!