"We must do more with less" - Gordhan
26 October 2011
Posted by: SAIT Technical
'We must do more with less'
GAYE DAVIS (Published: 2011/10/26)
Steering the country’s economy through "dangerous times” needs a collective effort to do more with the resources available, Finance Minister Pravin Gordhan has warned, with the uncertainties of a crisis-torn global economy posing considerable risks to South Africa.
The government had to make "a key shift” by curbing spending on consumption, such as salaries and wages, goods and services, and ploughing resources instead into long-term assets such as infrastructure and its maintenance. "This means that we must see a moderation in the growth of the wage bill and spending on goods and services… We must do more with less,” Gordhan said on Tuesday.
Belt-tightening is to include trying to put the brakes on the government’s runaway salary bill, up over the past three years from 35 percent to nearly 40 percent of non-interest spending, although unions would argue this was off a low base.
Gordhan said his 2012 Budget would provide for a "moderate” cost-of-living adjustment of 5 percent for state employees, which is unlikely to go down well with public sector unions. He said the same should apply to "ourselves as cabinet ministers and other political office-bearers”, and "also be extended to senior management in the public service and executives of state entities”, and it was "vital that the private sector provides responsible leadership as well”.
Tabling his medium-term budget policy statement in Parliament, he said the economy was expected to grow by only 3.1 percent this year, down from the 3.4 percent forecast in his February Budget, and far short of what was required to reduce poverty and unemployment in terms of the New Growth Path.
Many more jobs were being lost than created, indicating "the magnitude of the economic challenge ahead”. Making investment in infrastructure a priority would help, but while public service spending continued to grow, with R1 trillion available for next year, government capital spending had declined for three years in a row. "We are not doing enough to build a growing economy,” Gordhan said. Slower growth meant a R13 billion shortfall in tax revenue, now expected to come in at R729bn, and a bigger budget deficit of 5.5 percent than the 4.8 percent projected in February.
A temporary increase in borrowing was warranted, but needed "careful management” if future generations were not to be burdened with paying it off. State debt-service costs were already the fastest-growing category of government spending, he noted. "Budget deficits and continued rising debt erode the space for fiscal and monetary policy response to future downturns. For the next three years, the aim is to moderate spending growth, combined with a recovery in tax revenue, so that national debt will be stabilised… "We must borrow to invest in infrastructure – not for government consumption – and that’s the key shift we need to make.”
Plans to support economic growth and job creation include a R25bn industrial rescue package, to be spent over the next six years, to help companies, including small and micro-enterprises, mired in red tape. While the details are still being hammered out by Trade and Industry Minister Rob Davies, the plan is to boost competitiveness and exports, pay for incentives to lure investment in industrial development zones, support black business, and continue to spend on energy, water, transport and communications infrastructure – including a north-south corridor to allow access to markets in sub-Saharan Africa.
Gordhan again called for an end to wasteful and extravagant government spending – which increased last year – and said surplus cash held by government departments would be put into a "policy reserve” to finance these plans. "Greater efficiency must also be sought in government cash management, and in goods and service procurement, where ordinary disciplines of financial management have to be strengthened.
Further steps will be taken to reduce administrative costs and unnecessary duplication of capacity.” Departments would be "obliged” to make savings, and the auditor-general would be asked to "strengthen his focus on value for money”. Real growth in government spending will be just over 2 percent a year, most of it on education, followed by social grants and pensions, local government and housing, and health, including the first 14 pilot projects of the National Health Insurance.