Fiscal & Revenue Proposals for 2012/13

Submission by Business Unity SA to the Standing Committee on Finance

& Select Committee on Finance

Presented by Prof. Raymond Parsons

BUSA Deputy CEO

28 February 2012

INTRODUCTION

Economic Overview

Positive Features of the Budget

Some Vulnerabilities and Risks in the 2012 Budget

ECONOMIC OVERVIEWGlobal Economic Outlook

• BUSA shares the Minister’s assessment of SA’s economic prospects – similar to BUSA’s submission on 15 Feb

• Global economic outlook marginally better• Domestic economy remains vulnerable to a volatile global

environment• Asymmetric growth remains between developed countries and

developing economies (China, India) • BUSA agrees that SA needs to be competitive in a changing world• This will require flexibility, innovation and leadership in both public

and private sectors

ECONOMIC OVERVIEWDomestic Economic Outlook

• BUSA agrees: real GDP 2.7% in 2012, possibly rising to >3% in 2013

• But these positive growth rates inadequate to meet socio-economic challenges

• Unemployment remains high at 23.9%

• 850 000 new jobs projected to be created over next 3 years – 75% in the private sector

• Budget rightly adopts pro-growth stance

REAL GROWTH%

2011 2012 2013

Estimate Forecast

Household Consumption 4.9 (4.9) 3.6 (4.0) 3.8 (4.2)Gross Fixed Capital Formation 4.3 (4.2) 4.1 (4.2) 4.5 (4.5)Exports 6.0 (5.5) 2.9 (2.0) 5.8 (4.0)Imports 9.4 (8.8) 7.2 (6.9) 7.1 (8.0)GDP 3.1 (3.1) 2.7 (2.7) 3.6 (3.5)Current account balance (% of GDP) -3.3 (-3.7) -4.3 (-4.3) -4.5 (-4.5)

POSITIVE FEATURES OF THE 2012 BUDGETGeneral Approach

• BUSA views 2012/13 Budget as credible, broadly balanced and confidence building

• BUSA welcomes recognition of the “substantial role” of private sector in growth and job creation

• Emphasis on the need for policy direction to be certain, predictable and coherent

• Budget creates “window of opportunity” to do things differently and better

• Budget should encourage longer term perspective on SA’s growth and development, and required policy changes

POSITIVE FEATURES OF THE 2012 BUDGETSpecific Positive Aspects Debt profile appears more sustainable

Commitment to keep fiscus on sustainable track Central priority on expanded infrastructure PPP framework sound Forthcoming Infrastructure Summit Tax relief for SMMEs Support for improved competitiveness Mining – emphasis on need to leverage buoyancy in commodity markets Anti-fraud and anti-corruption initiatives Further engagement on carbon tax Efforts to reduce economic impact of Gauteng tolls Support for local municipalities Realistic phasing in of NHI and social security reform Emphasis on Youth Wage Subsidy Scheme -> 178000 new jobs Pre-budget consultation with Nedlac - mutually valuable

SOME VULNERABILITIES & RISKS IN THE BUDGETKeeping recurrent state spending under control

• Headline fiscal ratios appear healthy but can mask vulnerabilities

• State debt costs remain fastest growing item of state spending

• Further accidents to growth and/or interest rates could push ratio of gross debt to GDP to danger limit of 50%

• Debt trap could become significant risk, jeopardising development goals

SOME VULNERABILITIES & RISKS IN THE BUDGETImplementing the Infrastructural Programme

• Achilles' heel: possible failure to create “a capable state focussed on delivery”

– Minister has acknowledged weaknesses in the rollout of infrastructure projects– BUSA supports emphasis in Budget & NDP on professionalism in the public

service– Ways in which private sector can assist should be explored

• Administered prices – Cumulative effect of excessive rises negatively impacting economic performance– SONA acknowledgment of electricity price challenge welcomed– Better planned and coordinated approach to issues of affordability is needed

• SOEs – Essential that their role be appropriately defined and managed– Report from Presidential Commission on the Performance of SOEs– Need to enlarge investor base and develop cost-effective financing models

SOME VULNERABILITIES & RISKS IN THE BUDGETTax and related changes

• Lack of prior consultation on tax changes -> difficulty in anticipating unintended consequences for the economy

• Combined impact of:– Increase in fuel levy

– Increase in electricity levy

– Imposition of e-tolls

could seriously impact some sectors (e.g. transport, travel & tourism) - Parliament may need to interrogate these aspects with sectors concerned

• Recent changes to tax legislation have increased complexity of tax assessments

SOME VULNERABILITIES & RISKS IN THE BUDGETSocial Spending

• Remains essential to maintain effective social safety net • Budget Speech: social spending comprises 58% of government

expenditure, up from 49% in 2002• 1/3 of SA population receives a grant• Minister: redistribution is “not a substitute for economic growth and

job creation”• The more SA can push up growth & employment, the less

dependence there will be on welfare

CONCLUSION

Most important lesson of global economic crises:

- peril of procrastination

NGP, NDP and 2012 Budget must help create an environment which encourages long–term thinking

Following 2012 Budget: SA must implement effectively what has been agreed and funded

BUSA remains pledged to assist government wherever possible

Hamlet’s version of SA’s Economic Priorities

“To grow, or not to grow – that is the question. Whether ‘tis nobler for the economy to suffer the slings and arrows of outrageous global markets. Or take arms against a sea of internal troubles, and by opposing them – to end them? To delay – to procrastinate no more – and by effective delivery to say we end the heart-ache and the thousand shocks the SA economy is heir to. ‘Tis a consummation devoutly to be wished.”

(With apologies to Shakespeare)