The DA welcomes the "spending freeze" in the Medium Term Budget Policy Statement where the Finance Minister has, for the first time in several years, not increased overall spending by government for the year.
This was urgently required because our expanded budget deficit of 4.8% of GDP is much higher than the emerging market average of 1.9%. Our accumulated debt at 41% of GDP is also significantly higher than average debt in other emerging markets at 35%. Investors should regard this move as a commitment to fiscal consolidation.
The major problem with the Budget Policy Statement is that it, once again, highlights National Treasury's inability to influence macroeconomic policy reform. This is another year where Treasury has been unable to turn their policy proposals into action.
Like February’s budget statement, this budget is full of vague commitments to job creation and economic incentives. But over the past few years, we have seen Treasury's main proposals in these areas blocked by COSATU on ideological grounds or by the capacity of the ANC government to implement them.
That said, the Budget document shows a firm commitment to the National Development Plan, mentioning it 14 times and committing to implementing its programmes and policies. This is a serious snub for Economic Development Minister, Ebrahim Patel's New Growth Path which is mentioned twice, and only in passing.
Today Treasury has chosen sides. This is something we welcome.
The belt-tightening is seen in the R2 billion reduction in overall government spending for 2012. This reduction is, however, dependent on R3.5 billion in under-spending by departments, R3 billion in savings, and the full use of the contingency reserve of R5.7bn.
If we do not hit these targets, we will not be able to hold the fiscal line.
We welcome the measures announced by the Minister to combat wasteful expenditure, but the Auditor General (AG) has so far identified R6.7bn of wasteful expenditure in 2011. This amount of wasteful spending will only be eliminated if there is true political buy-in from the ruling party.
Economic growth for 2012 will also be weak. Coming in at 2.5%, which is lower than the expected 2.7%. On average, emerging markets as well as the economies of Africa will all manage to grow at more than twice this rate in 2012 (5.3%).
It is disappointing, therefore, that the NDP's proposed actions to remove constraints to growth (including active labour market policies, regulatory reform and removal of trade barriers) do not appear as firm policy proposals in the Budget.
Tax revenue that came in R5 billion lower than expected and, together with the additional R5.5bn required for the public sector wage settlement, sees the 2012 budget deficit widen to 4.8% from the expected 4.6%. This highlights the effect both COSATU and the weak economy have on the Budget.
The result has been a widening of the budget deficit for 2012/13. In fact, besides the 6.5% budget deficit experienced in 2010, the 2012/13 deficit of 4.8% will be the joint largest since 1994 and above the emerging markets average of 1.9%.
Government debt has tripled in the past five years and, alarmingly, continues to increase right up to 43% of GDP at the end of the medium term expenditure framework.
Government debt will reach 41% of GDP by the end of this year which is more than 1.6 times government tax revenue and in excess of the emerging market average of 35%;
This shows that the Minister had little choice but to embark on belt-tightening this year, but it also highlights the damage that the adoption of populist policies at Manguang could cause in our economy.
There is still no sign of the implementation of the Youth Wage Subsidy. This flagship programme to tackle youth unemployment was announced by Treasury two and a half years ago, with no commitment to implement it so far. Even though they acknowledge that 1 million people have given up looking for work in the past three years, Treasury seems to have run out of ideas on how to create jobs, focussing only on the CCMA and expanded public works in this Budget.
Mining and Labour Relations
National Treasury estimates that the recent unrest in the mining sector led to a loss of production in R10 billion. This would have been a major contributor to the reduction in tax revenue so far this year.
The Minister calls for the "re-establishment of orderly labour relations on the mines", but puts forward no proposals on how to do so.
Instead, he should have proposed reforms of the labour laws to end the majoritarian dominance of COSATU and other large unions. We need the democratisation of collective bargaining to happen sooner rather than later.
Treasury acknowledges that administered prices (set by government) have increased by more than 10% in the past year. The lack of a clear plan to decrease these prices, and thereby ease the cost of living and doing business in South Africa, is a major disappointment.
This budget will be regarded as a step towards policy certainty. But its proposals must be translated into action.
Establishing policy certainty is the only way we will start to reduce our rising trade and current account deficits.