Mr Speaker South Africa is in a fiscal corner because we are only growing at 2,7%; less than half the rate of our neighbours on the African continent. We face a R16 billion shortfall in tax revenue in this Budget. This means we have had to increase borrowing to pay our bills. This year, our Budget deficit will exceed 5% of gross domestic product, GDP, for the first time since 2009, when we had to respond in the short term to the global financial crisis.
The effect of our larger deficit will be to drive government debt higher over the medium term. In 2016, government debt will top 44% of GDP. This will not mitigate the ratings agencies' concerns about a lack of fiscal space.
We have been in a situation like this before. In the late 90s, debt reached 45% of GDP for several years. What did we do then? The solution was the partial implementation of the Growth, Employment and Redistribution plan, Gear, which saw the then Finance Minister, Trevor Manuel, take advantage of benign global economic conditions to draw down debt levels, reform the budget process and implement consistent monetary policy for the first time. Crucially, Minister Manuel had the full backing of President Mbeki to implement these reforms in the face of the opposition then from Cosatu.
Today, with debt levels approaching similar levels, Minister Gordhan needs to do something drastic to get us out of this fiscal corner but he faces three additional challenges that his predecessor didn't.
Firstly, he has the fall-out from the global financial crisis to deal with, including the sobering fact that South Africa is growing much more slowly than any other emerging markets. They say when the tide goes out you can see who has been swimming with no pants. It is clear that because we did not tackle reforms to our economy or spend enough on infrastructure when times were good, the global economic slowdown has revealed deep structural problems in our economy.
Secondly, he faces a recent history of ANC mismanagement of key elements of the economy. Infrastructure spending from 1996 to 2006 was half of what it should have been. Reforms to collective bargaining have been blocked. The restructuring of state assets has been off the table for a decade and exchange controls remain a huge disincentive to investment.
Thirdly, while he has the National Development Plan, NDP, on the table as a potential reform agenda to drive economic growth and help him draw down debt, it is not clear that he has the support of President Zuma in getting it implemented.
While the Finance Minister has tried to spend less in recent budgets, like on public sector wages, for example, his decision has been effectively overruled by Cosatu and the former Public Service Minister. When he tries to spend more, such as R5 billion on the Youth Wage Subsidy, he is effectively blocked by Cosatu.
The only way through this deadlock is for the President to back his Finance Minister fully, but this President unfortunately spends his time placating the ANC's allies; not taking the tough decisions that leadership requires.
Implementing the NDP is the best way out of this fiscal corner. Let me tell you why. The Minister has three options. First, he can cut spending: Reducing funds for bloated ministries and extravagant ministerial perks; clawing back some of the R30 billion lost to corruption; cutting unnecessary spending on consultants; and freezing spending on the President's home at iNkandla will all help, but we accept that broader austerity would hurt growth.
Second, he could raise taxes but South Africans are already overtaxed and they don't see value from the taxes they pay. Increases in taxes would also hurt growth. This leaves him with the third option - driving growth. This is where the NDP comes in.
If the NDP is implemented, it would drive growth higher, raising more revenue for the state. Gear helped us draw down debt in the 90s. Now the NDP can be our Gear and get us out of this fiscal corner. So, the DA welcomes the fact that this Budget is broadly aligned with the NDP, but it does lack detail on reforms in the plan that would scrap cadre deployment and hold public servants or teachers to account.
If you want to know why these things are left out, you only have to look at what Cosatu says about the NDP. They say: We remain extremely concerned that the conservative and pro-capital National Development Plan continues to receive ringing endorsement from the government. We dispute the assertion of the speech that there is a broad endorsement of the NDP.
This is the ANC's tripartite alliance partner that we are talking about. So, hon Mufamadi is misleading the House to say that all presenters in the public hearings backed the NDP. The National Union of Metalworkers of South Africa, Numsa, a key Cosatu union, was even more aggressively opposed to the NDP before our committee. The government loves to speak as if the NDP is broadly accepted by everyone in South Africa. Well, it is accepted by everyone except, presumably, the 35 members who came to this House under the flag of Cosatu.
What is really alarming about this is that Cosatu has a history of blocking policies that would help tackle our greatest challenges. They have successfully blocked the Youth Wage Subsidy for three years, so we are pleased that the Finance Minister has included it in this Budget in the form of the Youth Employment Tax Incentive, or Yeti. We hope that he has the political capital to implement it this time.
This was one of the highlights for us. The others are: A R2,9 billion tax incentive package for Special Economic Zones, SEZs, which is a key policy proposal; reforms of small business taxation of R360 million; and increased tax deductibility of charitable giving. While these were some highlights; there were also lowlights.
The Minister failed to deal with the fact that planned spending on infrastructure exceeded actual spending by 22% per year on average, for the past three years. In the next three years, we plan to spend only 7% of GDP on infrastructure; well below the 10% targeted by the NDP. Furthermore, we are concerned that the cut in the contingency reserve may be overambitious and leave us exposed.
The DA supports this Budget because the Minister has set out to align the Budget with the NDP, doubled-down on the Youth Wage Subsidy, and adopted key DA policy proposals.
However, we must warn the House: If Minister Gordhan continues to have his policy implementation blocked by Cosatu, then our support will end! Thank you! [Time expired.] [Applause.]