Mr Speaker, hon members, stable and mature democracies are indeed characterised by the resilience of their institutions, and their economic foundations are characterised by stability of income distribution.
The philosophy underlying leading democracies, the political aspects of their economics and the economic aspects of their politics ensures the stability of income distribution. We, in our beloved country South Africa, face the challenge of a stable democracy, but one that presides over worsening income distribution.
Combined with expansionary fiscal measures, cutting the interest rate always comes to the fore in any policy debate. It is true that this would go a long way towards assisting the economy. However, because of delays in the stabilisation measures having an impact on the economy - particularly in the case of the monetary policy, which usually takes 12 to 18 months to have a full impact - social protection measures are also critical in minimising the negative social impact on particularly the workers and the poor. Hence the current fiscal framework provides for more spending in this regard.
The macroeconomic policy context in which the 2010 Budget is tabled is characterised by a shift in emphasis away from inflation control to growth and employment creation. The pressures on inflation are significantly reduced, although with the recent electricity tariff increases we shall have to monitor the real effect of this increase. The demand for goods and services was in decline for most of 2009, but research has shown that a positive turnaround was achieved in the last quarter of 2009.
Major international economies are still in recession, and the main leading indicators of economic activity are pointing in a downward direction. Monetary policy is in an interest-rate-cutting phase of the cycle. Some central banks, especially the Federal Reserve and the Bank of Japan, are already reaching zero-bound interest rates. Options to use monetary policy as a policy stimulus are increasingly running out globally. This leaves fiscal policy as a potent tool to arrest the current decline.
However, issues of financial fiscal policy have come to the fore. Raising taxes appears not to be an option in the current phase of economic contraction, but the continued worsening of income distribution in South Africa during the past years of robust economic growth should not rule out this option.
Another financing option is to issue more debt. The capacity of South Africa's financial market to absorb the required amount of debt to finance fiscal expansion may not be sufficient, as has been realised recently. In this case, of course, we have no option but to look into foreign sources of finance. However, I must also indicate that the strained global liquidity conditions weaken the viability of sustained external finance.
The fiscal framework that we are debating today positions itself in terms of the Medium-Term Budget Policy Statement of October 2009. The budget deficit as a percentage of GDP has been increased significantly so as to have resources to cover the programmes the ANC-led government has to execute. All these programmes obviously mean an increase in the budget deficit. While some conservative economists have been critical of the ANC- led government's approach, what they have failed to appreciate is the need to continue to invest and spend in times of economic recession, even if the deficit as a percentage of GDP rises.
In this way, we are pushing the economy towards recovery. As has been outlined in the Budget Speech, the management of this deficit will be catered for in the outer years of the Medium-Term Expenditure Framework, especially as the situation provides little scope for any real increase in taxes. As the ANC-led government, we have raised the minimum wage level of tax over a number of years. This has given the lower-income earners much- deserved tax relief, which, in turn, has helped in increasing demand in the economy.
Despite the sustained - but, of course, moderate - growth we have realised, the gains from economic growth have benefited only a small section of our society. In particular, this is evidenced in the inability of our economy to create employment at rates that would meet the target of halving unemployment by 2014.
Moreover, economic concentration in the economy has not only resulted in price collusion in several industries but constituted a fundamental obstacle to the entry of new players into industries. In addition, the recent economic meltdown has further exacerbated the challenges that face poor households, while its pace has worked to limit the chances of adjusting to these challenges for the poor.
The impact in 2009 was obvious. The weakening demand for products has already seen job cuts, for example in the motor industry. Retrenchments were higher in more significantly smaller companies and across various vulnerable sectors. A number of companies responded by not hiring more workers, and pressure on economic growth has resulted in a slowdown in tax revenue, thus affecting the ability of our government to fund a more expansionary programme.
However, the creativity that underpins the 2010 Budget is remarkable. With reduced income and the shifts in policy, the ANC-led government, through the National Treasury, has been able to sustain expenditure and increase it whilst ensuring that the Medium-Term Expenditure Framework commitments are not abandoned.
The state has intervened to support existing jobs and create new jobs. Potentially, there is room for further economic stimulus packages that could provide a cushion for firms to adjust to new conditions. International conditions have not led the ANC-led government into retreating and withdrawing, as has been the case in so many other countries. Rather, they have potentially provided the space for moving towards a significantly more labour-intensive growth trajectory. This trajectory is possible, provided that social partners, as cited earlier, begin emphasising the importance of employment creation for our economy. We believe that a significant opportunity is available for increased social dialogue aimed, of course, at moving the South African economy forward on a new growth path.
To ensure the creation of decent jobs, our manifesto committed us to making available more resources, which will be used for the implementation of industrial policy and special programmes that will strengthen manufacturing, mining and other vulnerable sectors. The undertaking, through the vulnerable sectors programme, is a promise to increase savings and expand jobs in the clothing and textile sectors, to strengthen the automobile and components sectors, as well as to expand the food industry while making massive investments in public infrastructure.
As the ANC we are unambiguous about the argument that good-quality employment remains the first best option for our country. We will continue the major public job opportunities programme through the Expanded Public Works Programme as a key intervention. Our focus on employment is based on our understanding that whilst grants are important to stabilise society and support educational and job-search outcomes, a sustainable transition out of poverty, particularly for the young, will lie in widening opportunities for employment, including self-employment and study.
I think it is important that all of us in this House, as leaders, call on all intended beneficiaries to also reciprocate, because this is not a one- man show. We need their support, and we need them to reciprocate with regard to these interventions with the required vigour and commitment, because it takes all of us to make these interventions work for our country and, of course, for future generations.
Ours is a developmental state charged with driving social and economic development, a more efficient and co-ordinated public sector and an effective industrial policy.
In order to further entrench our developmental mandate, our government has committed substantial resources to developing sustainable economic activities that can also generate employment on a large scale. The commitment to upgrade the economic infrastructure represents only an initial step. It will be supplemented by establishing a clearer strategy for economic transformation, and of course for there to be better alignment of investment in infrastructure with the development strategy.
While we acknowledge land reform as a necessary condition for sustainable rural development in South Africa, it is equally important to stress that it is by no means a sufficient condition. Rural development entails more than the redistribution of land and ensuring that people make productive use of land. In other words, rural development is not only about agricultural development. Hence our approach recognises the following as some of the other elements of rural development that need to be taken into account when budgets are determined. These elements are: the promotion of agriculture-related enterprises in rural areas for those who are not interested in agricultural production; the development of rural infrastructure, particularly the provision of water and improved roads; ensuring that the curriculum in schools is revised and made to respond to the needs of rural areas; and the provision of health services.
From the above, I think we all concur that it becomes clear that for there to be sustainable rural development, a number of government departments will have to work together - a point set out clearly by the chairperson of our committee. This is something that poses serious challenges, not only for budgetary purposes but for co-ordination too.
With regard to issues of revenue and deficit spending, expenditure, as correctly captured, is matched by the sum of revenue and deficit spending, normally known as borrowing, with most of the expenditure funded through tax revenue in our situation. Raising the level of revenue is thus important in order to fund higher levels of much-needed spending.
According to the 2009 Medium-Term Budget Policy Statement, which gives the terms for this fiscal framework, we are moving towards a much more expansionary fiscal policy. In particular, with the economic downturn, expansionary spending to stimulate the economy is needed. This has led to a significantly higher deficit-to-GDP ratio. Given the current economic conditions and the developmental challenges facing the country, it makes sense to run a budget deficit in the medium term, as long as it is sustainable. Opposition to a deficit is usually based on the false neoliberal assertion that a government that finances spending through borrowing is "living beyond its means" and is deferring the cost of borrowing to future generations. This means that government can borrow from future generations. With accelerated growth, future generations will be rewarded with higher standards of living than would have been possible without deficit spending.
Expenditure needs to be efficient and productive. Productive and reasonably efficient deficit spending is crucial for building the economy and human capital for the future. It would be problematic to fund wasteful or fruitless expenditure through deficits. The ANC-led government has recognised the need for significant increases in the deficit-to-GDP ratio and the coupling thereof with strict monitoring and evaluation capacity. I must reiterate: "... with strict monitoring and evaluation capacity".
It is our take that this fiscal framework and these revenue proposals must be accepted as a tool that provides the much-needed scope for all role- players to shape our country's development in a way that will benefit future generations. We are all welcome. Kea leboga. [Thank you.] [Applause.]