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DA and COPE position on Medium Term Budget Policy Statement (MTBPS) Introduction It's crunch time in South Africa, where macro-economic policy is being fiercely contested within the factions of the ruling party. The DA and COPE recognise that consistent macro-economic policy is vital for economic success. Examples of countries that have taken the wrong decisions abound and we are working together to ensure that South Africa does not do the same. The 2009 Medium Term Budget Policy Statement will provide a framework on which the 2010 budget will be constructed. It will also set out the fiscal framework for the next three years and budget priorities in the division of revenue between national, provincial and local government. This joint statement results from DA and COPE commitment to good governance and concern over the increasing lack of political will to manage the people's money in the best interest of all South Africans. A growth economy with an appropriate role for government The DA and COPE want responsible government and fiscal policy and believe that it is possible to achieve efficiency and effectiveness in the application of public finances. Ensuring economic growth and access to the economy is crucial for job creation and sustainable enterprise. Economic growth has already slowed significantly this year and gross domestic product is likely to decline in the region of 3.5%. Given the nature of our economy, our exit from recession will lag that of many other economies. Revenue A decline in economic activity will result in a significant shortfall in estimated revenue in the region of R80 billion. To counter this, steps to increase the tax revenue base are required. These include bringing more tax payers into the revenue net and ensuring that non-compliance is minimised. Although the South African Revenue Service (SARS) is a capable institution, the key remains to develop a culture of taxpayer loyalty. This will only occur when taxpayers are certain that they are getting value for money. Action by government, especially expenditure on frivolous luxury for some, demonstrates that it doesn't offer value to tax payers and the poor for whom revenue collection was actually intended. Expenditure There is no evidence to suggest that government is taking steps to reduce expenditure to ease the deficit that will most certainly arise this year. Wasteful and opulent spending demonstrates the need for government to change the way it spends. Government needs to be professionally managed and its bloated bureaucracy deflated. Several state owned enterprises remain a constant drain on the fiscus. The current budget deficit could be eliminated if subsidies to these enterprises were not required. Austerity measures are essential to ensure that government expenditure is cut in the appropriate places. These should include:
• Urgent steps to counter corruption
• No budget roll-overs, except for service delivery infrastructure
• Good governance rules for state owned enterprises
• An audit of the necessity for state owned enterprises
• Re-evaluation of salaries, perks and bonuses offered by the state owned enterprises
• A freeze on filling public sector vacancies, except those required to improve service delivery
• Amendments to the ministerial handbook
• Managing the growing government salary bill
The budget deficit It is clear that we will be facing a budget deficit; this makes all South Africans poorer, and affects poor South Africans more than the affluent. The deficit is similar to the experience of many other economies across the world and is not a cause for alarm, provided the economy can recover from the current recession. It can only do this if the right choices are made. Choices need to be made regarding how to manage the deficit in the short term and ensure that it does not increase in the long term. Four choices exist:
• Raise taxes
• Borrow money
• Grow the economy
• Cut expenditure
It is likely that the deficit will grow to between 7 and 8% of GDP this year and that a mix of the four choices will be adopted. We do not support an increase in taxation, unless it is offset by a tax reduction elsewhere. Borrowing will need to be increased to fund the shortfall. Current government debt is fairly moderate and room exists for expansion. Domestic borrowing by government can crowd out the local economy's access to credit, and the price at which it can be obtained. International borrowing exposes the public purse to currency and interest rate risk. These factors will require careful consideration. Economic growth can occur as the global economic crisis eases. Appropriate cuts to expenditure are vital. Conclusion We stand at a crossroad where elements within the ruling party alliance, with a clear populist agenda, are increasingly micro-managing the government. If this trend continues to prevail, the potential impact of changes to macro-economic policy will be a blow to consistency and will send the wrong signals to participants in the economy. This is the most concerning macro-economic threat to our economy. Macro-economic decisions taken now will impact on our economic sustainability in the long term. If macro-economic policy is not properly steered in the most optimal direction, South Africa will be placed at a significant disadvantage in the global economy and cost us our position as an emerging market and valuable job creating opportunities. The taxpayer is not a bottomless pit of resources, times are hard enough as is - there is no reason to worsen the situation for taxpayers because of government failure.