South Africa

DA alternative budget: the year to restore investor confidence

By Sipho Hlongwane 26 February 2013

Infrastructure spending was the buzz phrase in last year’s budget speech. This year it ought to be ‘restoring investor confidence in South Africa’, if the Democratic Alliance’s 2013/14 budget proposal is anything to go by. It is very different to anything that the African National Congress ever proposes, even though it departs from the same point as the ruling party’s budget, and promises 8% growth without onerous tax burdens and a proper sweep-up of government inefficiency. It is, as these usually are, quite impressive. By SIPHO HLONGWANE.

The Democratic Alliance’s alternative budget speech is not just an exercise in political one-upmanship, even though it sets out to counter whatever the ruling party will put on the table when finance minister Pravin Gordhan puts out the 2013/14 national budget on Wednesday. The opposition party believes that its proposal represents a genuine plan to turn the sluggish economy around, create jobs and expand our gross domestic product at the same rate as the other fast-growing developing nations in the world.

The departure point for the ANC and DA’s economic plans is supposedly the same: the National Development Plan that was commissioned and brought forth by the ANC government, then adopted by President Jacob Zuma and his top lieutenants at the ANC’s national conference in December. It is now nothing short of the country’s blueprint till 2030. The DA agrees that the NDP is a good plan and wants to see the government start now to implement its basic tenets. But that’s not happening. Instead, we have weak political leadership right at the top dragging its feet and delaying the plan.

“This week, finance minister Pravin Gordhan has a chance to table a brave budget that is aligned with the NDP and that can start to rebuild confidence in our economy,” the alternative budget reads.

“In this year’s budget, we believe the finance minister needs to deal directly and unequivocally with key issues undermining South Africa’s growth potential and, as such, the capacity of our economy to create jobs and support economic redress.”

The DA believes that the budget must first and foremost address concerns raised by international credit ratings agencies, who have downgraded South Africa’s economic outlook, meaning that we are coming close to losing the BBB (or thereabouts) rating that we currently have. That will mean that international borrowing will cost us heavily in the future. That’s bad news, considering that we are currently servicing (roughly) $30 billion that was used to build new coal power stations, and a new batch of expensive nuclear power stations are expected within the next 15 years.

If the government makes strong moves to rebuild state capacity, reduces debt, actually spends on infrastructure and creates an environment conducive to growth, the DA says that South Africa will surpass the growth rate of developing darlings like Singapore and Vietnam.

“To significantly elevate growth rates in South Africa, the finance minister will need to emulate approaches of successful emerging economies by announcing a set of reforms to grow participation in the labour market, assist small business and broaden ownership. The DA’s plan for growth and jobs, released last year, represents a comprehensive plan to achieve 8% economic growth. At this rate we would see our economy double in size in less than ten years,” the DA’s budget says.

Last year, all three major credit rating agencies downgraded the country’s sovereign credit rating in response to three themes regarding South Africa’s resilience: government’s deteriorating institutional strength in the face of socio-economic stress, shrinking headroom for counter-cyclical policy action, and the negative investment climate.

Moody’s noted last year that though the NDP is an excellent plan, the climate doesn’t appear conducive to its implementation. In other words, there is no real will and backing from the whole country to implement it.

“While the National Development Plan submitted by the country’s National Planning Commission last November formulated a comprehensive set of reforms meant to lead to increased development and reduced inequality, Moody’s notes that the fractious domestic environment is not conducive to the reforms being implemented at present. An example is the protracted debate once again of the proposal to introduce he subsidy for younger workers, who face a 50% unemployment rate, at June’s National Policy Conference,” Moody’s said.

The DA’s key policy priorities are:

  • Setting out to reduce government debt to levels close 35% of GDP in the long term, by kicking off an aggressive process of fiscal consolidation. This priority is demonstrated in our commitment to running a budget deficit of 4.3% of GDP in 2013/14, an improvement on general projections of a deficit of between 4.5% and 4.7% for the upcoming year;   
  • Recovering nearly R30bn in revenue by streamlining government and curbing public sector corruption;
  • Boosting the job-creating potential of small businesses through a proposed stimulus package including R9.4bn in tax cuts and R3.7bn in additional support programmes;
  • Fully implementing the Youth Wage Subsidy and additional investment of almost R3bn in programmes fostering job creation;
  • Rolling out new investments of R4.6bn in education and skills development, including R200m for an in-the-classroom training programme for teachers and funding for roving master teachers;
  • Appropriating more than R1bn to promote empowerment and capitalise poor South Africans;
  • Keeping South Africans safer with an additional R3.4bn to secure our communities;
  • Eliminating broken promises on infrastructure expenditure with interventions to increase actual investment on infrastructure to 10% of GDP.

Even though the government has made increasingly shrill promises to increase infrastructure spending, the DA says that the actual spending by government departments and parastatals is short by 22% from 2009. In the last financial year, government only spent R201.7 billion of itS R266 billion allocation. Parastatals were short by as much as 40%.

In fact, the DA says that the current R1.5 trillion infrastructure backlog is directly attributable to the ANC’s decision to only allocate 5% of the national budget to that kind of spend between 1996 and 2006. Not only has the government been underspending its allocations, what it thinks is enough money isn’t to begin with.

The DA proposes to manage the budget without raising taxes (believing that we’re already taxed too much, compared to countries like Thailand, Brazil and India) by ruthlessly culling government spending and waste. The economic development ministry would go, as would sport. So too the anonymous department of women, children and people living with disability.

According to the DA, cutting down on the number of government departments would save the country R3.8 billion a year. Limiting losses due to corruption and poor financial management would recoup about R7bn. The biggest proposed saving is an annual R8,9bn from disbanding the SETAs and National Skills Authority.

One of the proposed savings would be to cut back on consultants. However, Harris said that there was no contradiction in both proposing that there ought to be less consultants and complaining about state capacity.

“Evidence shows that many consultants are hired to do the job of someone in the department. This is work that the department is supposed to be able to do. That is the kind of consultancy spend that we want to reduce,” Harris said.

He also argued that the DA would be able to manage the ballooning public wage bill. He pointed out that Gordhan previously said he did not want the bill to outstrip inflation in growth, but it has happened anyway. This is a sign that he does not have the political clout to rein in spending.

“We are currently stuck with the three-year determination that the government struck with public workers last year. If we ran treasury, we would have the political capital to implement rules,” he said.

With the country increasingly unable to spend without raising revenue from somewhere, there is increased worry that Gordhan will not be announcing a bold, growth-orientated plan, but a new tax regime. The DA is convinced that this will only drive international investment from South Africa to comparable countries. It believes that the only way forward is to raise economic growth to 8%, where real employment and inequality reduction can happen. This will not happen without bolstering investor confidence.

In October last year, Zuma held a meeting with South African business groups, and said that the country needed to restore investor confidence. The ANC secretary-general Gwede Mantashe has struck a different note of late, saying that if the ‘West’ continued to sulk and complain about South Africa, the government would simply look East for money.

“Sometimes, when you deal with the IMF or World Bank, or anything, they feel that you must stop thinking because they have money and they will tell you what to do with the money,” Mantashe said. 

“As long as that is the case, you are going to see the fast growth of the ‘look East’ policy.” DM

Read more:

  • DA’s 2013/14 budget 
  • DA’s alternative budget: Tim Harris’ 8% growth plan in Daily Maverick 

Photo: DA’s Tim Harris.


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