Deputy Speaker, hon Minister, last year all parties in the Standing Committee on Finance, including the ACDP, were unanimous in expressing our concerns in the report about the budget deficit and increasing public debt levels.
Notwithstanding these concerns, we note that the budget deficit is 0,7% higher than forecast in October, and that this trend continues over the medium term. While we have been given the assurance that the budget deficit will decrease to between 3% and 4% by 2013, and that this is acceptable when compared to developed countries, in our view, the deficit is high when compared to similar emerging economies.
The Standing Committee on Finance has again this year expressed its concerns in this report regarding the budget deficit, projected state debt cost and spiralling debt service costs. Debt service costs will amount to R77 billion next year, rising to R104 billion in 2013-14. Now remember, a whole budget in 1994 was R112 billion and that is close to what we will be paying as debt service costs by 2013-14. Obviously, the size of the budget deficit at present results in debt service costs rising faster than any other category of spending over the medium term.
Furthermore, these high deficits lead to rising debt service costs that compete with productive expenditure. The Minister has given us the assurance that steps will be taken to ensure that the growing debt burden does not crowd out spending on development priorities, and that government will stabilise growth in interest costs through a careful, controlled reduction in the deficit, taking into account the health of the economy. There is, however, no guarantee of this, given that the global recovery is risky and fragile and that South Africa's economic growth is inextricably intertwined with the global economy.
Let's look at some of the factors that influence global economic growth figures. These are high personal debt levels, high government debt levels, the slow-down in the Chinese economy, which has driven global economic recovery, and the instability in northern Africa and the Middle East, which is threatening oil supplies and boosting prices.
In the event of a second leg to the global recession, governments would be hard-pressed to stimulate their economies further, given those massive fiscal stimuli during the 2007-08 recession. Such a second leg is not an unlikely event, with the Governor of the Bank of England, Mervyn King, warning last Friday that Britain could face another financial crisis if the banking sector is not reformed.
The budget deficit would be more palatable if government was spending more on the productive supply side of the economy as opposed to the demand side. However, more and more funds are being allocated to current costs such as the public sector salary bill that has doubled over the past five years.
Against this background, the ACDP welcomes the Minister's announcement that the fiscal guidelines will be prepared along certain principles. This should be in addition to the fiscal pact, as proposed last year by the Financial and Fiscal Commission, to clearly establish the level of debt and what the debt can or cannot finance; in other words to ensure that we apply the golden rule that government only borrows to invest in capital and not to fund current consumption spending, and possibly moving towards a current budget surplus.
The ACDP will, however, remain positive and trust that growth forecasts will be higher than estimated, leading to increased revenues and that we will speedily reduce public debt and debt service costs, leading to a better future for all. The ACDP will support the fiscal framework and revenue proposals, subject to the above reservations. Thank you.