Date: 02/03/2010
Source: Inkatha Freedom Party
Title: IFP: Oriani-Ambrosini: Speech by the Inkatha Freedom Party MP, in the National Assembly debate, on the Fiscal Policy Framework, Parliament

Minister Pravin Gordhan is an extraordinary man. I came to know him during
the negotiation process. He has a strong personality which would almost be
intimidating and threatening, were it not for his intensely benign and
reassuring attitude and the sense of confidence which emanates from his
leadership. This may account for the fact that he has charmed so many into
applauding his fiscal policy framework.

Minister Gordhan will borrow in the next three years not only as much debt
as was accumulated during the last days of colonialism, the apartheid period
and the new democratic South Africa - inclusive of money used for the
greatly increased social spending of the past 16 years - but about one and a
half times more than that. The present national debt of R513 billion will be
raised to R1.3 trillion by 2013, and that is not the end of it.

According to his projections, the debt will only stabilize by 2015, by which
time, if growing at the same rate, the debt will be R1.7 trillion. He
clarified in committee that in 2015 we will have a stabilized budget, by
which he means a budget with a deficit of only 4% of GDP which, by
projecting the growth of the size of the budget and the GDP, means that
after 2015 the deficit will grow by a few more hundred billion Rand per
year. In this context, in 2015 every child will be born with a debt at birth
of about R340 000 at present Rand value, steadily growing thereafter. The
principle of no taxation without representation does not apply in respect of
such newborns who will have to pay off money they had no part in borrowing.

With his charm, Minister Gordhan tells us not to worry because he has got it
all figured out. He tells us that the economy will grow this year by 2.3%,
next year by 3.2%, and the following one by 3.6%, and thereafter it will all
be hunky dory. He is relying on the same advice of those who in the past 15
years have got growth projection wrong, starting from the 6% projected
growth in GEAR, which turned out to be a mere 3%, to finish with the grand
prediction that the recession would bypass South Africa.

The Reserve Bank appeared before our Standing Committee and frankly told us
that the Minister's growth projections are inflated and they themselves work
on something more realistic; around a flat 2% growth for the foreseeable
future.

But this is not the end of it. After having decided to borrow us all into
major problems on the basis of such optimistic outlook, Minister Gordhan
candidly tells us that nobody knows whether the recession is really over and
it may very well get much worse and longer before it gets better.

Therefore, we are borrowing against an untested best case scenario which the
Minister himself warned us against giving too much credence to. To me this
sounds like daredevil fiscal policy.

But it gets worse. In order to reduce the borrowing which would otherwise go
to R3.6 trillion by 2015, Minister Gordhan takes out of the budget R846
billion worth of public expenditure for infrastructures and places this cost
directly on the consumers' shoulders, at the time of their direst need and
greatest indebtedness.

Instead of doing what he should, which is financing Eskom's build program
out of tax money so that the rich pays for it more than the poor, he let
this and other infrastructure be financed through tariffs, so that the poor
above the social safety net thresholds and the middle class will have to pay
it off, while business can treat it as a pass-through cost, thereby again
getting the consumer to pick up the bill.

But it gets even worse. Even taking Minister Gordhan at the value of his
optimistic and charming face, he has no plan whatsoever on how to repay the
R1.7 trillion of debt accumulated by 2015. His plan is to keep the debt
there and service it at a cost to the budget likely to be one and a half
times the entire budget of our education system.

Worse; his best scenario is predicated on certain assumptions on the revenue
raising side. Yet the track-record of his Department also shows that they
have got these projections wrong, as the Minister admitted to us in respect
of this year. So we must compound the possibility of a lower growth rate
with a lower revenue income in a scenario in which the only certainty is the
minimum amount of money we are going to borrow, which will be at least about
50% of the GDP, but could be more.

Yet referring this debt to GDP is almost meaningless, as our families and
industries alike are heavily indebted. A correct reference to the GDP should
include not only the national debt but the entire debt of the nation,
including that which each one of us carries.

Then there is the huge unspoken threat of municipal debt already
skyrocketing out of control. In the final analysis this debt can only be
paid by tax payers through rates or transfers from the national budget.

All this begs a question too scary for most to consider, and yet
inescapable: How are we going to pay all this debt off? And if we don't pay
it off, how do we cope with a situation in which we need to carry it on
forever? Do we get out of it by means of hyper-inflation? Do we pursue a
steady policy of tax increases so as to milk the middle class out of
existence, especially the newly emerged one which has the lowest rate of
accumulated savings? The Minister is already increasing indirect and
regressive taxes this year, like fuel, alcohol and tobacco levies, and has
made it clear that he gives no assurance that next year taxes will not
increase dramatically.

There are no answers to these questions. Therefore, we have great difficulty
in supporting a leap in the dark merely on account of how good, charming and
self-confident a man our Minister is.