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Congress of the People (COPE) welcomes the announcement by the Minister in the MTBPS that the fiscal framework will narrow the gap between spending and revenue.
We welcome the deficit prediction of 5.5% of GDP, which is slightly up from the February budget, but nothing to worry about. The forecasted figure of 3.3% in 2014/15 must be welcomed and it is sending a strong signal.
We welcome the announcement by the Minister to publish a long term fiscal review and to encourage public participation and oversight in this process.
We welcome the shift in the composition of public expenditure. The emphasis on the promotion of industrial and economic development, housing, urban infrastructure and employment programmes are welcomed. The R25bn to assist the industry to be more competitive that will be made available over the next 6 years is welcomed.
COPE differs with the position taken that our debt is moderate. There is still uncertainty as to when government debt will stabilise, is it 2015 or 2016? In the February budget it was 2014! State debt costs are the fastest growing component of state expenditure. It is growing at 14.4% per annum. We should spend more on servicing debt than on transfers to local government.
COPE acknowledges the strong leadership shown by the Minister to make difficult decisions and to direct scarce resources to economic development and service delivery. We welcome the acknowledgement that government’s share of GDP need to moderate to avoid an unwanted future debt burden. The 42% of GDP for the wage bill is simply too high. We have no room left. The 5% adjustment should only apply to certain lower categories that are to reduce the gap between the poor and the rich over the next 3 years.
We welcome the emphasis put on “efficient way” of spending by the State and the better control to yield recurrent savings and to eliminate waste.
It appears as if the National Treasury is cautious about social security and health care spending (already 27% of the total budget) and we welcome the announcement of a social security reform discussion paper. Social welfare grants now support 15.2 million South Africans; this is up from R2.5 million in 1998. The announced in-depth consultation process for 2012 will be a make or break process for the future of state finances.
We differ with the economic growth forecast to reach 4.3% in 2014 and the forecast for 2012 – 2014. It is too optimistic. The inflation forecast of 5.5% for CPI inflation is too low and it should be closer to 6.5%. The fact that inflation is breaking the “target band” of 3 – 6% in 2012 is a concern.
We are concerned about the currency volatility, which remains a cause for concern. This can only be countered by strong fiscal responsibility and political leadership. We welcome this indication given in the MTBPS.
We are concerned about the level of household debt. At 75.9% of disposable income, household debt is still too high. There seems to be no impetus from this sector to bolster economic growth.
We welcome the proposed reforms of an investment regulating framework. This framework will promote investments, reduce the cost of doing business and cut the red tape on cross border transactions.
We are concerned about the sluggishness of the labour market. This is a clear indication that we need a new way of thinking around this debate. Government cannot continue to be the largest employer in our country.
We are concerned about the estimated gross tax revenue downward revision of R13. We simply need to save more. South Africans can prepare themselves for higher taxes in 2012.
We are concerned about the South African bond market. We do not believe that this market is “highly liquid and deep”. South African bonds did well up until the end of August 2011, until the South African currency started to weaken against other foreign currencies. In response to that investors took the knock and sold R14bn of bonds. We are struggling to get investors at the same pace as before. The interest rate we are paying on our foreign debt portfolio is much higher than the 5.5% repo rate and a matter for concern.
We welcome the acknowledgement that fiscal choices that South Africa makes over the next 3 years will have implications for the next 30 years! There is no room for mistakes.
We are concerned about government spending. Currently this figure is higher than it has ever been. In 2012 it will amount to more than R1 trillion. The emphasis by the Minister to limit spending growth is welcomed, but we do not see its application. The Presidency and Ministries must lead the way on this.
It is cooling down time and time to save. Ministers must spend less on luxurious hotels and cars. We must address the “reckless spending” perception created by Departments and Ministers. It is crucial that we enter into “savings mode”. The Minister of Finance must come out stronger on these issues. The Ministers must lead on the reprioritising and realignment of their budgets, starting with their Ministries.