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The Medium term budget

01 November 2012   (0 Comments)
Posted by: Stiaan Klue
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"There are no evil thoughts except one: the refusal to think."

- Ayn Rand, Atlas Shrugged, Part 2, Ch. 2

Each year during the February budget speech and the October mid-term budget speech a Minister of Finance will proclaim "we have to do things differently".

Every year the obvious is stated: improve tax collection, reduce waste, ensure efficient spending, improve service delivery and control debt levels.

Every year most commentators express general support for the budget. Fin24 reports that the SACP praised the budget's focus on the integrated infrastructure roll-out, and its continued commitment to both the manufacturing sector, and an expanding social wage. The chairman of Parliament's standing committee on finance, ANC MP Thaba Mufamadi, believes that there will be no reduction of infrastructure and social spending. COPE MP Nick Koornhof commented that the Minister was brave for maintaining fiscal discipline. The DA commented that the budget supports the National Development Plan - a plan that calls for more spending and infrastructure development.

Every year the speech commits to controlling public expenditure. This year's speech was no different. A "categorical commitment" was made to carefully examine the roughly R340-billion being spent on state salaries, and the need to control the ballooning debt repayments totalling R114.8-billion for 2012/2013 was noted. Another programme that received attention was the R138 billion social pension programme. According to Business Day's Tom Cohen, this budget amount is now larger than the health budget and will reach 17-million people in 2015.

South Africa'spublic government expenditure is approximately 32% per cent of GDP. This figure is comparable to many OECD countries. According to a report issued by the Centre for American Progress the level of public spending as a share of GDP reflects underlying expectations about the role that government plays in a country's society and economy. Total public spending as a share of GDP varies significantly across OECD countries. South Korea is at the low end with public spending at 27.3 percent of GDP, while Sweden is on the high end with 54.4 percent public spending as a share of GDP.

The problem, as Cohen notes, is that in South Africa government programmes are funded mostly by about 1,000 companies and perhaps 2-million significant taxpayers. This is not sustainable and is exacerbated by the current economic recession.

Is it not time that we really think differently? Should the answer always be more spending, more taxes, better government? However beneficial these items may be - is this all that there is?

It was interesting to read about the views of Leon Louw of the Free Market Foundation. According to Louw, thinking differently would have seen a budget speech that includes the following:
  • Required regulatory impact assessments on all new and existing legislation
  • Redistribution of government land and providing full and freely tradable freehold at no cost to millions of recipients. This would inject two full budgets into the economy
  • Privatising SOE's and giving shares at no cost to low-income South Africans and public servants
  • Immediate removal of exchange controls
What constitutes real change? Are we allowed to consider proposals outside of the current paradigm?



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