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DA: David Ross: Address by DA Shadow Deputy Minister of Finance, during the delivery of National Treasury Budget Vote, Parliament, Cape Town (21/07/2014)

DA: David Ross: Address by DA Shadow Deputy Minister of Finance, during the delivery of National Treasury Budget Vote, Parliament, Cape Town (21/07/2014)

21st July 2014

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Let me start by thanking the Minister and Chairperson of the Standing Committee of Finance for the open and frank discussions allowed in the Standing Committee of Finance, especially with regards to the: Treasury aims and objectives and Economic outlook in general.

With regards to Treasury’s aims and objectives is important to note the challenge to coordinate economic policy.

Key to this is policy coherence to create an enabling environment for economic growth.

Economists agree, Honourable Minister, that pursuing economic growth at high levels is the best way to fight poverty and unemployment.

This, Chairperson, is the only sustainable way to create jobs and lift people out of poverty

Chairperson the DA thus supports the NDP. It promotes a cycle of growth and development, that focuses on expanding opportunities for all, creating an inclusive economy and improving state capacity.

These ideas underpin the vision of an open opportunity society for all.

Our Committee recommendation is welcomed as the committee indicated in its report that the committee is keen to see greater synergy between the NDP, Strategic Plans and the allocation of budgets to departments.

The Committee feels that National Treasury has a crucial role to play in this regard, and will be keenly monitor this.

The model preferred should be the State as the enabler for growth and with the private sector playing a pivotal role in growing the economy.

The National Treasury’s annual Performance Plan Economic outlook indicate that confidence is low, which negatively affects investment in the short term.

Economic goals of Investment growth of 6% by 2017 and infrastructure investment goals of R827bn over the medium term, needs to be supported.

Local big business warned however that urgent action is needed to save the economy from another credit downgrade, that would increase borrowing cost and that would make SA less attractive for investment.

If the national Treasury remains steadfast in supporting the NDP, IPAP and NGP it needs to note:

that the NDP is largely a market driven Plan,

While the IPAP (Industrial Policy Action Plan)  and NGP  (New Growth Plan) put the State in the centre of economic activity.

The Developmental State concept, where the State is at the centre for economic activity is indeed not useful in growing our economy.

To head down the path of an ever more State–directed economy is a path that has not succeeded anywhere else.

The reality is that SA faces weak economic growth with the economy contracting in the first quarter, and economic growth this year likely to come in at well below 2%.

The real challenge is that the South African economy has been caught in a stagflation trap as we struggle with persistently high inflation and low economic growth.

In 2013, inflation was 5.9% and growth 1.9%. The gap between inflation and growth will widen further this year.

And the twin deficits on the current account and budget have parachuted South Africa into a very fragile corner.

This is compounded by a third deficit — a household deficit — that has resulted in a battle against high costs, especially from administered prices.

In the last year, South Africans have been subjected to significant increases in the cost of living. Electricity, fuel, food and public transport have all become much more expensive, in a matter of months.

This is unfortunately a continuation of a painful trend

Chairperson, It is reported that ESKOM has approached NERSA for an increase in the price of electricity to fund the ESKOM build program and to fund the inefficiencies within ESKOM.

Chairperson Electricity pricing should be inflation related. If not it will have a devastating effect on all South Africans and especially the poor needs to be considered.

The threat to energy security and excessive electricity pricing is the single most important issue that needs to be urgently addressed, in moving  the Economy forward.

The Standing Committee expressed its concerns about the stresses placed on the national budget by the constant re-capitalisation of state-owned-entities and their inability to meet the goals they set for improvements in their financial position and capacity to deliver

Strikes, rising inflation, a weaker rand, and lower commodity prices in dollar terms were factors that weighed on investor confidence.

The Erosion of confidence in SA is feared by BUSA

We should remind ourselves of the simple equation that investment equals Jobs.

So inhibiting Investment is not a good idea. South Africa depends heavily on investors who buy local bonds and equities as we run a large current account deficit that needs those funds to finance the shortfall.

Inhibiting investment is indeed a bad idea given SA’s Fiscal constraints and the need to deal with the funding requirements of ESKOM and Transnet.

To dilute property rights could bring the collapse of the economy as people will not establish businesses or develop commercial farming in SA, if they fear that property will be expropriated.

It will lead to an immediate downgrade by rating agencies and increased borrowing costs.

It will lead to diminish foreign and domestic investments and would have unacceptable implications for SA’s balance of payments.

Government should not risk such a negative outcome.

The DA has long fought for reforms which will turn the economy around.

These include:

    Provide political leadership and restore investor certainty by speaking with one voice on the economy and implementing one plan; The NDP
    Boost trade with the rest of Africa through trade-focused diplomacy and cutting the costs of trading across borders;
    Make it easier for South Africans to start and grow their own businesses by cutting red tape and providing more support for entrepreneurs;
    Invest 10% of GDP in infrastructure to reduce the cost of doing business;
    Break up inefficient state monopolies and distribute shares to ordinary South Africans to increase competition.
    Make sure that labour laws support job creation by achieving a balance between the protection of workers’ rights and the need for labour market flexibility in support of job creation; and
    Managing public money better by combating government corruption and making sure that government spending decisions are taken in the best interest of all South Africans.

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With regards to investment as a key driver for economic growth The National Development Plan seeks to achieve a 30% investment rate, which must be backed by a similar savings rate.

I have written to the Parliamentary Budget Office and requested an analysis with regards to the importance of both foreign and Domestic Investment to our Economy and to the factors inhibiting investment.

In conclusion:

Noting the immense challenge of the African continent infrastructure gap and insufficient investment to address the challenge, a report indicates our infrastructure gap in Africa is close to $100bn per annum.

The establishment of a BRICS development bank with subscribed capital of $50bn still pose many unanswered questions.  What would the implications be for SA in earmarking $5bn of its reserves to fund the currency reserve agreement of the bank?

It could be considered as a positive that The Minister indicated “South Africa’s investment in the bank and its African centre would help attract other foreign resources."

The establishment of the bank will however not mask the SA domestic issues!

SA needs coherent policy to address the scourge of poverty and inequality. SA certainly needs government action that grows opportunity for all, through the National Development Plan.

Thank You

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