“I am confident that South Africans will rise to the challenge,” writes Nhlanhla Nene. “They have a history of doing the right thing at the right time.” (Image: Brand South Africa)
Nhlanhla Nene, South African minister of finance
We presented the medium-term budget policy statement last month in a difficult economic environment. Our growth performance has decelerated significantly over the last four years. Obviously, the global crisis of 2008 sent us into recession. The outlook for global growth remains gloomy, and in all likelihood it will be many years before the global economic returns to the growth rates experienced before the crisis.
It has also become increasingly clear that structural constraints in the domestic economy are holding South Africa back. These include infrastructure bottlenecks, weaknesses in the delivery of government services and a conflictual labour relations environment. The 2014 budget policy statement is a response to this reality facing us.
It is essential that we act now to defend the gains we have made. In 1996, government spending on education amounted to R1 100 for each South African. Today, we spend more than R4 000. If we remove the effects of inflation, this is a real increase of 50%. Similarly, health spending per capita has increased from about R500 in 1996 to nearly R2 400 for each South African today, a real increase of 93%. Overall, government spending has increased from R5 700 for each citizen in 1996 to more than R23 000. This has been achieved without increasing taxes.
Defending these gains means doing three things proposed in the policy statement. First, we have to slow down the growth of government debt. To do otherwise would be to place our achievements at the mercy of fickle global markets. Therefore, fiscal consolidation can no longer be postponed. The fiscal framework achieves this through slowing increases in spending, and pencils in moderate increases in tax revenue.
Second, we have to improve the quality of government services. Despite the huge increase in spending over the last 10 years, the quality of government services have remained a challenge.
We have doubled the social wage (expenditure on housing and community amenities, health, education, and social protection) in real terms. Social assistance pays directly to vulnerable households, while the other public services that make up the social wage replace or subsidise expenses such as housing, education and amenities, reducing the cost of living.
Capital spending has grown tremendously. The salaries of public servants have increased much faster than inflation. All of this should have translated into improvements that can be felt in the lives and wellbeing of ordinary South Africans.
The key question we face in the years ahead is, therefore, how we can make sure spending does change the lives of South Africans in radical ways. Without improving the quality of our budgets it is doubtful that increases in the quantity of spending will have the desired effect. The challenge of doing more, together, with less applies to all government departments, to all provincial governments and, not least, to the state-owned companies.
The third challenge is to restore the momentum of economic growth. Over the longer-term the money required to fund government spending can only come from economic growth. Faster growth is a key objective of the National Development Plan. But it is also a necessary condition to raise the resources needed to fund the country’s social and economic transformation.
There are limits to what the budget itself can do to sustain growth. The budget relies on resources from the economy. We cannot pull ourselves up by our own bootstraps forever. High rates of inflation and a wide current-account deficit limit the scope for macroeconomic policy.
The critical issue now is the structural transformation of the economy. The reforms we require are spelt out clearly in the medium-term strategic framework, which outlines a five-year strategic programme.
But as the strategic framework points out, achieving a higher developmental trajectory and building a more equitable society cannot be the work of government alone. The burden of development cannot be carried by the fiscus alone. It requires partnerships between a capable developmental state, a thriving business sector and a strong civil society.
The next two years will be challenging. All of us will be called upon to share in the burden. Unzima lomthwalo, ufun’ amadoda!
But I am confident that South Africans will rise to the challenge. They have a history of doing the right thing at the right time.