Hon Speaker, hon Ministers and Deputy Ministers present here, in particular the Minister of Finance; hon members; distinguished guests, let me start by congratulating the Minister of Finance and his team, under the leadership of President Jacob Zuma and the executive in its entirety, for putting forward a Medium-Term Budget Policy Statement or proposals under very difficult and trying global economic circumstances. This requires, in the main, that government should realign its policy stance, grounded in a sustainable structure that will promote growth, equity and job creation.
Let me also take this opportunity to congratulate Statistics South Africa under the leadership of the Statistician-General, Mr Pali Lehohla, and the entire management, and particularly the hundreds of enumerators who visited millions of our homes. Most importantly, however, credit must be given to the millions of South Africans who opened their homes and warmly received and embraced the campaign entitled The South Africa I know, The Home I Understand, which underpinned the Census 2011 project.
As for the census outcome, even though it is not the subject for debate today, the results tell us a story - a story of a journey of the South African people in their quest to change their lives, traversed in the past two decades. It is a story that measures the impact of our policies in the betterment of the quality of the lives of ordinary citizens. It is a story of significant success but also of some critical setbacks; a story of income disparities between black and white, rich and poor. In short, it is a story of deepening inequalities and joblessness. It is a story of social and economic injustices for the majority of our people. It is a tale of a river between: between a city, on the one hand, and a village on the other. A river between: a source of life and opportunities for some, and a source of hope and aspirations for all, but only accessible to the city people.
Therefore, this is an injunction for policy and decision-makers such as ourselves to redouble our efforts in pursuance of a vision for all freedom- loving South Africans, to overcome the legacy of inequality and injustice created by apartheid colonialism in a swift, progressive and principled way; to develop a sustainable economic and state infrastructure that will progressively improve the quality of life of all South Africans; to encourage the flourishing of the feeling that South Africa belongs to all who live in it, black and white; and to promote a common loyalty and pride, which is the basis upon which we can build patriotism amongst our people.
The Fiscal Framework, as presented in the Medium-Term Budget Policy Statement, presents Parliament with an opportunity to set out macroeconomic policy objectives that will underpin the economic growth trajectory for the next Medium-Term Expenditure Framework period. The framework has as one of its objectives the aim of providing a cushion against global volatility and declining economic growth internationally. The focus, therefore, of the Fiscal Framework is consistent in expanding the social wage to promote service delivery while maintaining the acceleration of infrastructure investment to promote industrialisation and create sustainable jobs.
The fiscal policy framework is contextualised within the context of declining growth in the international economy, particularly in Europe and the USA. As a consequence, the world economic growth has been revised downwards, which compels us, as South Africa, to focus on promoting trade within or with emerging economies, particularly within the Brazil, Russia, India, China and South Africa, Brics, family and the African continent as a whole. Our gross domestic product, GDP, growth rate has been revised further downwards by 0,2% from 2,7% to 2,5%. Of note, is that our growth rate remains positive, although at a lower level. The revised GDP projections resulted in the revision of revenue projections downwards to the tune of about R5 billion.
Debt service cost reduction remains a priority in the Medium-Term Expenditure Framework projections. The wage bill continues to put pressure on the fiscus - salaries still account for the largest percentage of government expenditure. However, it is important to note that the average wage increases will be less than 3% in the Medium-Term Expenditure Framework.
Let me commend the Minister of Finance for his open and frank admission that we are crafting the Fiscal Framework under circumstances not of our own choosing. I quote from the Medium-Term Budget Policy Statement:
If the economic environment deteriorates, government will need to reconsider current expenditure and revenue growth plans. In a lower growth scenario, an appropriate balance between spending restraint and new revenue initiatives will be necessary.
What the ANC stated in its Strategy and Tactics of 2007 remains relevant and correct today: South Africa's interests in a complex and unpredictable global environment necessitate the building of capacity for strategic as well as rapid response to changes in our region, Africa and the world.
Such responses should be anchored on the development of Africa and the developing world. Therefore, the Fiscal Framework has to respond to fluid economic conditions because it plays a critical role in interacting with other policy objectives in determining economic and social outcomes. In addressing the challenges faced in transforming the economy as a whole, and in specific sectors, it provides for the extension of the social wage in addressing inequality and infrastructure investment.
The revised Fiscal Framework remains consistent with the established position and maintenance of countercyclical policy. In essence, the main thrust of the revised fiscal policy is to ensure a balance between expansion in spending in order to address problems of unemployment and the need to reduce levels of borrowing to militate against the long-term implications of debt service costs.
It therefore suggests to us that it is important to reflect on the delicate balance between what we can do and achieve as a nation, and the necessary caution we need to take into consideration, given the impact of the international economy due to the European and US economic recovery challenges, as this will have an impact upon the South African economy, given the large trade volumes between South Africa and these countries.
The countercyclical policy is designed to steady the economy and to protect core social and economic programmes from undue volatility. In practice, a government pursuing cyclical policies should save revenue or run a surplus during good times in order to spend more when the economy is faltering. This is the position in which we find ourselves to a large extent today.
In terms of the observations of the committee, having considered the 2012 Medium-Term Budget Policy Statement and public submissions, the Standing Committee on Finance has observed that the global economic outlook remains uncertain and domestic economic growth is expected to remain moderate. The following factors have narrowed the fiscal space available to government over the medium term, elevating the level of debt: higher than expected operational costs, particularly on personnel expenditure; and savings from the current Budget baseline allocations. It is very, very important that we recognise that there is no additional cost to the taxpayer in terms of continuing to implement our social and infrastructure programmes. We are borrowing for capital expenditure and not for consumption, and therefore there is value for money in what we are trying to achieve as a country.
In terms of the revised Fiscal Framework, the committee has therefore recommended that the National Treasury should develop mechanisms to increase monitoring, to ensure value for money in terms of proper co- ordination and procurement processes, which will assist the attainment of expenditure within the available budget. We, as the committee, support the Medium-Term Budget Policy Statement, particularly the Fiscal Framework. I thank you. [Time expired.] [Applause.]
There was no debate.
Hon Speaker, I move -
That the Report be adopted.
Declarations of vote:
Mr Speaker, the DA approves of the committee's report primarily because we welcome the spending freeze announced by the Minister. This is exactly the right signal to send to the ratings agencies to show that National Treasury remains in control of the country's finances.
However, Treasury did have to do some fiscal gymnastics to get to this spending freeze. The expenditure side has been cut by savings of R3 billion, which is to be welcomed, but it has also been slashed by R3,5 billion of underspending. So, effectively, we now are banking on departments to underspend their budgets in order to balance the fiscus. This is extremely problematic.
Perhaps more alarming is the fact that the entire contingency reserve of R5,7 billion has been added on the revenue side. This reserve is meant to remain in place to provide for unexpected contingencies and acts of God. The DA supports the policy of building in a contingency reserve but we do not support drawing it down to balance the Budget. If we spend it now, we could be vulnerable and exposed.
So, even though the spending freeze requires some smoke and mirrors, we commend the Minister of Finance's stated commitment to fiscal consolidation. It is much needed in this government that has a serious wasteful expenditure problem.
While this Budget shows that Treasury is in control of the finances, unfortunately it also reveals that they are not in control of the economic policy. Every Budget, the Minister of Finance stands here and calls for microeconomic policy reform; he calls for a reduction in the costs of regulatory compliance for small business. He calls for the removal of trade barriers; he calls for things called "active labour market policies", which is a euphemism for youth wage subsidy. What does this government do about implementing these things? It does nothing, niks nie, lutho. I have only been in Parliament for the past three and a half years and I'm already sick of the Minister of Finance standing here every few months to announce things that never get implemented. I can only imagine how frustrated the veterans of this House must be. This is the DA's main problem with this Budget and with the Fiscal Framework. Thank you. [Applause.]
Chairperson, Cope welcomes the emphasis on the National Development Plan, NDP, and believes it will play an important role in stabilising fiscal discipline and provide for a conservative Fiscal Framework in the years to come. We welcome the commitment to prudent fiscal management and we support the fact that inflation targeting must provide a solid foundation.
The challenge will be to stick to the 2012 baselines. If the departments are not going to do their part, the Treasury will struggle. It is a collective approach by all. If the government as a whole is going to fail, the baselines will not be respected.
Finally, the stabilisation of public debt must remain a top priority, and steps to avoid further downgrades must be on top of the agenda. Cope shall support this report. Thank you.
Chairperson, the IFP is not in a position to oppose this statement, either. We realise that the Minister of Finance, after all, is the one who needs to implement the policy of government. We feel that he is doing the best he can within the policy parameters of the government he serves.
We have a fundamental difference of opinion on what ought to be done at the macroeconomic level and share the concern expressed by the hon Harris that, even within the limited leeway that the Minister of Finance has been accorded, the Minister does nonetheless make the right noises and the right statements, but those statements, year after year, are implemented only to a limited and insufficient extent.
We would like to have seen not just a freezing of expenses but a fundamental reprioritisation of expenses to give substance to the policy statement often repeated in this House of building productive infrastructure to create a new economic and industrial basis for the country. That is just not in the Budget of this year, not in the adjusted Budget and the Budgets of previous years and very likely will not be in the Budgets of future years.
Within the present circumstances, the Minister is doing sufficiently well that we cannot oppose his action. However, we must call for a fundamental rethinking of the overall budget framework of the country. The system is not sustainable. When I say that, the Minister immediately points out to me that we are much better off than other countries - undoubtedly. That is not sufficient satisfaction, because those other countries have got so much built-in equity from which they can take, whether it is through the taxes or through industrial capacity or through what is called human capital, and we just do not have it.
We are running as a company that runs on operational capital and those reserves are not there. So, those comparisons are not necessarily justified and what is not necessarily justified is the fact that we have an opportunity in South Africa to get it right, to break the mould. I feel that that opportunity was lost by European countries long ago. We could find this country ahead of most European countries in 30 to 50 years, if we now make the right decisions outside the present fiscal, financial and economic mould. Thank you.
Chairperson, the ACDP supports the revised Fiscal Framework. In our view, the Minister of Finance has not departed from a prudent, yet expansionary and countercyclical fiscal policy - it is quite a mouthful. This is notwithstanding the very uncertain global economic outlook, as well as domestic challenges arising, inter alia, from the illegal strike action in the mining sector.
We believe the Fiscal Framework sends a very clear message to reassure jittery foreign and domestic investors and credit rating agencies that National Treasury will not deviate from its trademark fiscal conservatism, notwithstanding political pressure from various quarters. The challenge will be implementation amidst opposition from within the ruling alliance, particularly as it was pointed out by other speakers regarding economic policy, with the youth wage subsidy being one example of this.
The report contains a number of recommendations which the ACDP supports. It is of great concern that foreign direct investment has dropped by 44%. The report states that the country needs to do more - I would say a lot more - in terms of stabilising the political environment and resolving labour disputes to address this.
The report also makes it clear that economic growth is not near the levels required to address widespread unemployment. In this regard, it is very clear that the Fiscal Framework must be closely aligned to the National Development Plan, NDP, which identified constraints to economic growth as well as solutions.
Again, the question of implementation of the NDP is critical. The primary risk to our fiscal outlook remains lower than expected GDP growth. Slow growth of 2,5% means lower tax revenues, and we see our revenues revised downwards by R5 billion. This raises important questions as to the sustainability of government's present fiscal path over the medium term.
We note, however, and commend the Minister that the budget deficit is 4,8% - it is only slightly higher than forecast in February - and that this trend continues over the medium term. Any drastic deviation from the fiscal consolidation path could spark another credit rating downgrade, and that we do not need.
Lastly, the ACDP believes it is imperative to ensure that the fiscal guidelines are strictly adhered to by government. They should be, because they come from National Treasury. These include a countercyclical approach, debt sustainability and intergenerational equity. The fiscal stance should target medium-term debt consolidation with moderate expenditure growth to support economic growth and sustain the social wage. The ACDP will support this revised Fiscal Framework. I thank you.
Motion agreed to.
Report accordingly adopted.