Chairperson, hon members, I present the National Treasury's Budget Vote for the consideration of the House. In doing so I ask that we take stock of an increasingly dangerous global environment and the economic challenges we face on our journey to a more inclusive growth path.
The global turmoil of the past four years has reminded us not just of the risks associated with credit-based booms and the importance of rigorous financial regulation, but also of the interconnectedness of financial and fiscal systems. Breakdowns in banking lead to budgetary interventions; budget failures require banking intermediation.
But the issues confronting Europe and other parts of the world are not just about the economy but more broadly about the political economy of policy- making in complex and challenging times. When I use the word "dangerous" I do not use it lightly. I quote from an article by Martin Wolf in yesterday's Financial Times, where he talks about "A permanent precedent". One scenario he pens is this, and I quote:
As explained earlier in this series...
It is a series on the Greek exit, if that is going to take place -
As explained earlier in this series, a cessation of external official funding could trigger a disorderly collapse. The government would default. The European Central Bank would argue that Greek banks no longer possess good collateral which would prevent it from operating as a lender of last resort. There would be comprehensive bank runs. Athens would impose exchange controls, introduce a new currency, redenominate domesticate contracts and default on external contracts denominated in euros.
That gives you just one idea of the possibilities that lie ahead of us in the next few weeks.
Much of the work of the National Treasury is focused on understanding these dynamics and ensuring that we as South Africa don't step over the critical solvency and sustainability frontiers.
But financial and fiscal health is not enough. We also need a vigorous enterprise economy, we need prosperous mines and factories, we need our schools and hospitals to function well, and we need to enhance competitiveness and improve productivity, both in government services and in the private sector. These are not just outcomes of sound budgets and sustainable financing arrangements; they also depend very importantly on effective implementation of policies and programmes.
Global economic growth has remained weak this year, as we anticipated at the time of the Budget in February. Growth in output in our own economy is uneven and slow, while consumption spending remains buoyant, although the last numbers don't look that good.
But the challenge we face is not just growth; it is a more broad-based transformation - not just development, but structural change that will extend opportunities to the unemployed, and unshackle the enterprise potential of our people.
What are the trends in our economic performance? The domestic economy is showing some signs of moderate growth, but the external environment remains weak and risks are high, as I have pointed out.
The most recent data from the SA Reserve Bank, for the last quarter of 2011, showed that household consumption and investment were still growing robustly. Consumption grew by 4,6% in the quarter, investment by 7,2% and government consumption grew by 7,3%. The National Treasury forecasts that household consumption and investment will continue to grow robustly in 2012, and government spending will also support growth.
But output growth in the first quarter of this year was slower than we forecast at Budget time, mainly due to the effect of the Impala Platinum strike on mining production. Retail sales, as I have indicated, have also slowed somewhat, and manufacturing production was disappointing, falling by 4,3%.
Monthly figures are, of course, volatile, but it is clear that investment is still being held back by both global and domestic uncertainties. Leading indicators, such as the Kagiso Purchasing Managers Index and the Reserve Bank's Composite Leading Business Cycle Indicator, point to continued growth - so there is no reason for gloom yet - but at a moderate rate. Despite high oil prices and a weaker exchange rate, inflationary pressures have remained relatively subdued. The main risks to the economy remain external. Political developments in the Eurozone, as I have pointed out, have heightened the risk that Greece will exit the single currency within the next year, though there is little clarity on how this would be achieved and what its impacts could be. Martin Wolf and company are, of course, speculating on that.
The United States should post subdued but positive growth in 2012, at a pace similar to the 2,2% expansion in the first quarter of this year. There are also risks to Chinese growth, due to slowing exports to the Eurozone area and a deflating domestic housing bubble, although some say there is no bubble.
Several economies in Africa and the developing world continue to grow more quickly than the main developed economies. Trade and investment patterns are shifting rapidly, as we know. Both our international relations and our trade and industry policies have to adapt to this rapidly changing global environment. We need to join our African partners in boosting industrialisation in Africa, developing regional value chains, and increasing intra-African trade.
We need to take stock of where we are in the light of the financial crisis. For us, as it is becoming for the rest of the world as well, growth is an imperative if we are to reduce poverty and inequality in our society. Much of Europe is currently grappling with the tension between growth and structural reforms and, of course, fiscal consolidation on the one hand, and the need to reduce debt and financial imbalances on the other. Our choices may not seem so stark, and perhaps our challenges are more about institution-building and adjustment to new global trade opportunities.
But let me emphasise that it is not governments that trade; it is businesses that trade. It is businesses that need to become enterprising. It is business leaders who need to understand what this gloom might mean, what our own constraints are, and what their contributions need to be in order to change our economic prospects and therefore the prospects of their own enterprises as well.
In this respect the work of the National Treasury and its associated institutions - the Development Bank of Southern Africa, the Public Investment Corporation, the Financial Services Board, the SA Revenue Service, and the Financial Intelligence Centre, amongst others - is highly dependent not only on our own policies and programmes, but also on those of my fellow Ministers, other departments and our provinces and municipalities. The Deputy Minister will deal with some of these entities when he addresses you. The Treasury has several specific responsibilities in this challenge. These are outlined in the strategic and business plans for the period ahead, and I outlined some of them in the House.
Our countercyclical fiscal stance, reflected in the budget framework tabled in February this year, remains correct. It requires continuous monitoring of economic and public finance trends and analysis of long-term prospects for our economy. Work is in progress on a long-term fiscal report and fiscal guidelines, as requested by Parliament.
The Presidential Infrastructure Co-ordinating Commission, PICC, has made excellent progress in the planning and assessment of strategic infrastructure programmes required as the foundations of faster long-term growth and more inclusive development. The financing and financial management of these projects are critical for their successful implementation. The Treasury has stepped up its capacity to assess and support major infrastructure programmes, and will continue to strengthen work in this area so that we have a sustainable infrastructure programme. We recognise that accelerating infrastructure investment and maintenance will require further shifts in the composition of expenditure in future years.
Alongside the emphasis on transparency and performance measures in our budget process, we continue to work intensively on better value for money in government expenditure, combating corruption, and improving procurement and supply chain management processes.
Faster economic growth depends in part on improving our national savings effort. An initial discussion document on savings and retirement reform has recently been published, and social security proposals will shortly be released. We look forward to public consultation and engagement, both with this House and with the public.
You will be aware that government has established a Jobs Fund in support of faster employment creation. It has allocated R1,8 billion to 34 projects to date, which will be matched by project sponsor contributions of about R1,7 billion. Once they get off the ground, these projects are expected to generate about 102 000 new jobs, and over 50 000 placement and training opportunities. A second call for proposals has also been issued.
Our cities and towns play an important role in economic development. In addition, our townships are, and must increasingly be turned into, centres of economic vibrancy, and should not just remain marginalised areas. Two programmes will promote this perspective and ambition. The first is the Neighbourhood Development Partnership Grant, which will see about 85 projects under construction by the end of this year. Work is already in progress on a broader framework for township regeneration and improved integration of urban landscapes. A new cities support initiative will get under way this year, beginning with needs assessments and identification of pilot interventions to support improved infrastructure planning, management of the built environment and economic development of major urban areas. The Treasury has also assisted in the Renewable Energy Procurement Process being overseen by the Minister of Energy, which is currently assessing the second round of proposals by independent power producers and will in due course lead to multibillion rand investments in harnessing wind and solar power as part of our national electricity network.
Better financial management requires investment in financial skills and capacity. The Treasury continues to work in the areas of financial management, internal audit, municipal finance, supply chain management and government accounting. We must, of course, recognise that this is a multidecade task that lies ahead of us.
These are some of the Treasury's activities. In the flurry of debate around issues of the day we are inclined to forget the ordinary business of planning and monitoring; consultation with departments and government agencies; negotiations around budgets; analysis of financial trends, impacts and risks; revenue collection; loan management; and financial supervision - it is a long list of tasks that the Treasury performs on behalf of South Africa.
On the question of employment, data from the Quarterly Labour Force Survey shows overall employment decreased by 75 000 in the first quarter of 2012. Employment losses fell across all age groups, with job shedding most severe among those aged from 25 to 34, with 31 000 job losses quarter to quarter. For those from 35 to 45 years - that excludes most of us in this room - there were 22 000 job losses quarter to quarter; and for those from 55 to 64 years, with some exemptions- which includes most in this room- there were 21 000 job losses quarter to quarter. Employment for all age groups, except those aged 35 to 44, remains below pre-crisis level, although young people aged 15 to 24 continue to be worst affected amongst all the population groups.
A broad range of measures is needed if we are to make progress in expanding employment and alleviating the special problem of youth unemployment. These include measures aimed at stronger investment and growth through our infrastructure building programme and economic support packages, and addressing skills constraints in the economy through measures to improve access to and the quality of basic, further and higher education.
Now, wait for it! Tailored employment policies, including the Community Work Programme - I just learnt about this one as well, please - environmental sector Public Works programmes and the National Rural Youth Service Corps, received additional allocations in February's Budget and will help boost youth and overall employment in the short term.
A number of concerns have been raised in connection with the proposed youth employment incentive. The discussions with social partners are aimed at mitigating these concerns, and they are real concerns. The rules governing, design and monitoring of a youth employment incentive need to ensure that it does not have negative unintended consequences, including potential displacement. We would like to see these issues addressed fully in discussions between social partners at the National Economic Development and Labour Council, Nedlac, but with urgency, as the challenge of creating jobs for young people cannot be deferred indefinitely.
One appeal I must make to all of us is: Don't make youth employment a political football. These are real people. [Applause.] These are young people who have aspirations for themselves and for their families. Let us not make them the target of cheap political shots by anybody.
In our supporting the work of the Ministers' Committee on the Budget, several programmes and reform initiatives of government ... [Interjections.] ... will come under review to establish whether they are value for money, and their effectiveness and impact. Now, just in case you have not heard this, let me repeat it, since you have been getting excited about other issues. Programmes and reform initiatives of government will be reviewed to establish whether they are value for money, and their effectiveness and actual impact.
These include Public Service remuneration trends; school education expenditure; costing and financing of the national health insurance; options for improvement in the human settlement development grant; introduction of the mortgage indemnity scheme; water sector expenditure and pricing, and the acid mine drainage problems; agriculture and rural development programmes; implications of the Defence Review; and budgeting and financing of major infrastructure capital projects.