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South Africa Budget Speech 2017/18: Transformation for Inclusive Growth


South Africa Budget Speech 2017/18: Transformation for Inclusive Growth

South Africa Budget Speech 2017/18: Transformation for Inclusive Growth
Photo credit: GCIS

South African Finance Minister Pravin Gordhan delivered the national Budget Speech for 2017/18 on 22 February in Pretoria. Below are extracts from his speech.

I have the privilege to present our Government’s budget for the fiscal year 2017/18, and the framework for the next three years.

In the words of the Freedom Charter, “South Africa belongs to all who live in it.” In drafting our Constitution, this was a central foundational principle, and so the values of freedom, dignity and equality are embedded in our law and our polity.

This is also why our Constitution requires that all who live in our country should have access to housing, medical care, social security, water and education, There should be a progressive realisation of access to tertiary education and other elements in a comprehensive set of social entitlements. Wealth and economic opportunities must be equitably shared.

These commitments impose obligations on government – and have implications for the business sector and all stakeholders. We have a shared responsibility to address the social and economic challenges before us.

These South African realities are known to all of us.

  • Income growth has been uneven – the bottom 20 per cent have benefited from social grants and better access to services, the top 20 per cent have benefited from the rising demand for skills and pay increases. Those in the middle have been left behind.

  • Wealth remains highly concentrated – 95 per cent of wealth is in the hands of 10 per cent of the population.

  • 35 per cent of the labour force are unemployed or have given up hope of finding work.

  • Despite our progress in education, over half of all children in Grade 5 cannot yet read adequately in any language.

  • More than half of all school-leavers each year enter the labour market without a senior certificate pass. 75 per cent of these will still be unemployed five years later.

  • Our towns and cities remain divided and poverty is concentrated in townships and rural areas.

  • Our growth has been too slow – just 1 per cent a year in real per capita terms over the past 25 years, well below that of countries such as Brazil, Turkey, Indonesia, India or China.

These are our realities. They mirror the stresses of poverty and vulnerability in many developing countries, and the inequality between rich and poor throughout the world.

Even in the developed world, there are serious faultlines and uncertainty:

  • Citizens lack of trust in elites

  • Growing inequality

  • Globalisation benefitting a few

  • Stagnant and falling incomes of the middle class.

These, among other factors, are also driving a case for radical transformation of economic models, and a call for inclusive growth.

President Zuma has rightly emphasised that the requirements for transformation and change in South Africa are wide-ranging. Laws and regulations, policies and their implementation, initiatives of national, provincial and local government, our black economic empowerment charters and the engagement of business, organised labour and civil society partners are all critical levers of change. So is our budget.

This is not a transformation to be achieved through conquest, conflict or extortion, as in our past. We do not seek to reproduce the racial domination that was the hallmark of apartheid nationalism. Our transformation will be built through economic participation, partnerships and mobilisation of all our capacities. It is a transformation that must unite, not divide South Africans. This is the task entrusted to us by Oliver Tambo, Helen Josephs, Walter Sisulu and Rolihlahla Mandela.

We find ourselves at a conjuncture which requires the wisdom of our elders to help us make the right choices and keep the trust of our citizens.

Summary of the 2017 Budget

Today’s Budget message is that we are once again at a crossroads. Tough choices have to be made to achieve the development outcomes we seek:

  • Economic growth is slow, unemployment is far too high and many businesses and families are under stress.

  • We face an uncertain and complex global environment.

  • At the same time we face immense transformation challenges – we must overcome the inequalities and divisions of our society. All South Africans must share in a more prosperous future.

  • We have a plan for a more inclusive, shared economy. Its implementation requires greater urgency and effective collaboration among all social stakeholders.

  • Change is difficult, and often contested. In these tough times we draw strength from the resilience and the diverse capabilities of our people, our business sector, our unions and our social formations.

The key features of the framework for the 2017 Budget include the following:

  • Expenditure is within the envelope projected in last year’s budget.

  • An additional R28 billion will be raised in taxes.

  • The budget deficit for 2017/18 will be 3.1 per cent of GDP, in line with our fiscal consolidation commitment.

  • Government debt will stabilise at about 48 per cent of GDP over the next three years.

  • Redistribution in support of education, health services and municipal functions in rural areas remains the central thrust of our spending programmes.

  • Government’s wage bill has stabilised. Procurement reforms continue to improve the effectiveness of public spending and opening opportunities for small business participation.

  • Our state-owned companies and finance institutions play a substantial role in infrastructure investment and financing development. Their borrowing requirements are taken into account in the overall fiscal framework.

Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.

Global economic outlook

After several years of tentative economic growth, there are signs that a more sustainable recovery might be under way.

  • Growth in the United States and Europe is steady, although at low levels.

  • India and China remain comparatively buoyant, and economies such as Russia and Brazil are set to recover from recessions.

  • The International Monetary Fund projects that the world economy will grow by 3.4 per cent in 2017 and 3.6 per cent in 2018.

Many countries face the challenge of ensuring that as growth picks up, its benefits accrue to all in society. The 2008 financial crisis and its aftermath exposed deep fault-lines in the world economy and in the distribution of income. Economic recovery has been slow. In several countries affected by unrest or war, there has been great hardship and dislocation of people. The impact of trends in trade, technology and commodity markets has been uneven. These forces have heightened social and political pressures for change. Global strains manifest in various ways, including the rise of strident economic nationalism and protectionist policies.

Government and business leaders throughout the world have had to reflect on the deficit of trust and loss of social solidarity in their societies. Policies and programmes that strengthen economic inclusion are being prioritised everywhere. In the words of Pope Francis, “Reforming the social structures which perpetuate poverty and the exclusion of the poor first requires a conversion of mind and heart”.

We therefore welcome Germany’s commitment to highlighting Africa and its infrastructure financing requirements as a priority of its term in chairing the G20 countries.

We operate within a connected global economic system. South Africa’s economic performance is affected by global economic trends. We rely on global cooperation to address trade imbalances, the abuse of tax havens and the coordination of financial stabilisation efforts.

South Africa, and the entire African continent, stand to gain from expanding global trade within what Minister Davies has described as a “more inclusive progressive multilateralism, characterised by real cooperation and solidarity,… sensitive to the needs of the poorest.”

South Africa’s growth and transformation

Moderate GDP growth recovery

Our expectation at this stage is that GDP growth will increase from 0.5 per cent last year to 1.3 per cent in 2017, and will continue to improve moderately over the medium term.

  • The services sector was the main contributor to growth in 2016, bringing nearly 120 000 new work opportunities.

  • Mining continued to underperform while manufacturing output was supported by buoyant sales in petrochemicals, food and beverages and motor vehicles. Mining and manufacturing employment declined by 80 000 jobs in 2016.

  • Weak business confidence and low levels of profitability weighed on investment across all sectors.

  • Though the policy interest rate has increased by 2 percentage points since 2014, inflation ended the year above the target, with food prices continuing to reflect the impact on agriculture of poor rainfall.

  • Lower growth in our trading partners in Africa and elsewhere has contributed to sluggish export earnings.

We expect somewhat higher growth in the coming year on the strength of a number of favourable trends:

  • Commodity prices have rebounded

  • The exchange rate has recovered from its rapid depreciation last year, which bodes well for capital flows, inflation and business and consumer confidence

  • Drought conditions have abated in most of the country

  • Production stoppages associated with industrial disputes have been comparatively low

  • Electricity supply has improved, allowing new connections and industrial demand to be accommodated.

But the projected rate of growth is not sufficient to reduce unemployment or impact significantly on poverty and inequality. It falls well short of our NDP goals.

In order to boost investment in the short term, there are several specific imperatives:

  • Finalising legislation relating to mining development and land redistribution.

  • Implementing the transition from analogue to digital television, which will release spectrum for broadband services.

  • Continuing our independent power producer programme, both in renewables and to take advantage of gas investment opportunities.

  • Further strengthening of economic regulatory functions and streamlining investment approval processes.

  • Production-friendly industrial relations and prompt resolution of disputes.

  • An enabling environment for small enterprises and support through leveraging both public and private sector procurement budgets.

  • Focused support on labour-intensive sectors, including agriculture, agro-processing and tourism-related services.

  • Strengthening regional ties and trade links.

  • Safeguarding South Africa’s investment-grade credit rating.

The Budget and transformation

The budget gives effect to our transformation action agenda by financing government programmes which:

  • Ensure that many more people live in dignity every year,

  • Radically improve access to services and economic participation across all racial lines,

  • Energise growth and create jobs,

  • Increase investment and development – at national, provincial and local level – mobilising resources across government, business and other sectors.

A growing economy makes more rapid transformation possible, but it is the fiscal system that is the most direct vehicle for redistribution and inclusivity. The South African budget finances the construction of houses and schools, the education of young people, care for the elderly and incomes of the most vulnerable. About two-thirds of the Budget is dedicated to realising social rights. We have programmes that build infrastructure, support new businesses, empower small farmers, develop human capabilities and incentivise job creation.

The budget is highly redistributive to poor and working families. It also redistributes substantial resources from the urban economy to fund services in rural areas. The formulas used to distribute resources to provinces and municipalities are governed by transparent rules in which equity and needs are the primary consideration.

But budgets alone cannot achieve our transformation goals. We need a powerful combination of:

  • Effective and targeted government delivery of economic programmes,

  • An energetic coalition with labour, business and civil society,

  • A consensus on a transformation programme – with each of us clear about the contribution and sacrifices we have to make to ensure optimal inclusivity,

  • A commitment to eradicate gross inequality and share the benefits of growth and restructuring of the economy.

Government can be an important catalyst. But it cannot carry all of the responsibility for ensuring that every citizen experiences a palpable change in wealth, dignity and well-being.

This has to be our collective choice.

Towards a transformation action agenda

Transformation is in part about overcoming the legacy of exclusion and inequality of the past, but it is also about restructuring the economy to take advantage of new technology, market access and investment opportunities.

It is about investing in social capabilities, through better outcomes in health and education and skills development, and through inclusive and responsive institutions.

Allow me to emphasise five critical priorities in which government is committed to work with the private sector and social stakeholders to propel inclusive growth.

  • Improved education is a central priority, and particularly the quality of basic literacy and numeracy achieved in the first phase of schooling. We must increase funding for proven interventions.

  • Reform of technical and vocational education and training programmes is vital, so that they effectively meet occupational and industrial needs. We must strengthen collaboration between employers and TVET colleges.

  • We must accelerate development of our cities, housing investment, improved public transport and urban enterprise and industrial development.

  • South Africa’s integration and linkages with its regional neighbours offers significant opportunities for enterprise growth, agricultural development and new industrialists.

  • Reform of domestic market structures, promotion of competition, deconcentration of monopolised industries and greater private-sector participation in sectors dominated by public enterprises: these are structural reforms that will bring opportunities for business development, modernisation and a more balanced distribution of wealth and opportunities.

In regard to market concentration, Honourable Members, I need to commend the work of our competition authorities under Minister Patel’s leadership. These are difficult regulatory issues, particularly where the activities in question involve large institutions operating in internationally integrated and complex markets.

If we transform competitive markets effectively, we will see more rapid growth. If we achieve faster growth, we will see greater transformation, enterprise development and participation.

Financial sector transformation and regulation

Since the global financial crisis in 2008, we together with our partners in the G-20, have been on a long journey to make the banking system safer, and prevent the type of economic crisis that systemically important banks can trigger. We responded with a series of substantial, intrusive and intensive regulatory reforms. Cabinet approved the shift to the Twin Peaks regulatory system to make the financial sector safer and serve SA better, introducing the following structural reforms to our regulatory system:

  • In 2012, the new Financial Markets Act introduced a framework for unlisted derivatives, which caused so much damage in the 2008 global financial crisis.

  • In 2013, the Banks Amendment Act brought in requirements for increased capital and better liquidity management.

  • In 2013, Government took steps to deal with household over-indebtedness starting with abuses in emolument attachment orders, also known as garnishee orders.

  • In 2015, Minister Nene tabled the Financial Sector Regulation Bill to give effect the Twin Peaks system. As soon as this bill is enacted, we will be able to establish a fairly.

  • Earlier this year, together with Minister Davies, new restrictions on credit life insurance were implemented, preventing the sale of retrenchment insurance to people without jobs, for example.

As an employer, National Government has investigated 135,000 emolument orders against state employees and reduced the number of deductions by 49,000. We hope all employers will assist their employees in the same way.

As we have seen recently with the Competition Commission investigation, there is evidence of a collusive culture at trading desks in banks. It is precisely to deal with such abuses that we have proposed a dedicated market conduct regulator, and we hope Parliament will pass this Bill as soon as possible. Collusion must be stamped out whether it is in banking, construction or the bread industry. But banks need tougher rules to cover financial market abuses, and the Reserve Bank and National Treasury have initiated work on a more comprehensive Financial Markets Review under the leadership of former Deputy Governor James Cross, to build on the Review conducted in 2014.

Although progress has been made in transforming the financial sector, more needs to be done to broaden access through more affordable financial services, improve market conduct, ensure employment equity at top management levels, provide procurement opportunities and transform ownership.

We live in an era of rapid technological change. Three new banks have been granted provisional licences, including the PostBank, and two new stock exchanges. Their business models are based on technological innovation with potential to bring services more cost-effectively to more people.

I am pleased to announce that we will work with partners at NEDLAC who have requested that a Financial Sector Summit take place in 2017 to consider transformation in this sector.

Partnership for transformation and inclusive growth

The 2017 Budget has been prepared with a view to strengthening both our economic growth and the transformation of our society. This year’s Budget Review sets out our point of departure:

“To achieve the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development.

Transformation without economic growth would be narrow and unsustainable.

Growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past.”

Although our own transformation imperative derives from a particular historical trajectory, many analysts have pointed to similarities with social fragmentation and inequality challenges elsewhere in the world.

On one important reform, we have taken a giant step forward. We have agreed to implement a minimum wage of R20 an hour with effect from next year. Its implementation will require complementary measures to support workers and employers in vulnerable and low-wage sectors, and enhanced assistance to young and unskilled work-seekers. We also need to seek progress on social security reform alongside phasing in the minimum wage.

Our past efforts have come short of delivering either adequate growth or the social transformation we need. We are at a crossroads now. We need to act urgently to build confidence and support investment. We need to bring all stakeholders onto an inclusive growth and transformation path.

We have proved that we can change course through negotiation, participation and partnership. We have the resilience needed to more forward confidently even in uncertain times.

Last year, impetus was given to several initiatives under Mr Jabu Mabuza’s business sector leadership:

  • A fund to support small and medium enterprises has been established,

  • A youth employment service programme has been initiated, with the aim of creating a million work opportunities over the next three years,

  • Strategic interventions to support black participation in agriculture have been developed.

In the year ahead our focus must be on inclusive growth and a transformation action plan. Bold and ethical leadership is needed from all sectors of society.

In this way we can all embrace a vision of substantive meaningful transformation which will allow us to say we all own our economy.

Obstacles there will be many. Overcome them. Detractors abound. Disprove them.

Negativity inspired by greed and selfishness will obstruct us. Defeat the bearers of this toxic ethic.

So, what are the main elements of this budget:

  1. While global growth is slightly better, geo-political and economic uncertainties have increased.

  2. Our low growth trajectory provides a major challenge for government and citizens.

  3. We need to radically transform our economy so that we have a more diversified economy, with more jobs and inclusivity in ownership and participation.

  4. Our financial situation is difficult, but we have still produced a credible budget.

  5. We need to prioritise our spending better, implement our plans more effectively and make a greater impact.

  6. We need to build the widest possible partnership to promote consensus and action on a programme for inclusive growth and transformation.

I paraphrase what I said in October last year,

Fellow South Africans, if we make the right choices and do the right things we will achieve a just and fair society, founded on human dignity and equality. We will indeed transform our economy and country so that we all live in dignity, peace and wellbeing.

This is the time for activists, workers, businesspersons, the clergy, professionals and citizens at large to actively engage in shaping the transformation agenda and ensuring that we do have a just and equitable society.

We also need to consider, in the face of such intractable economic hardships and disparities, whether we should supplement our Constitutional Bill of Rights with a “Charter of Economic Rights” – a charter that would bind all of us to an economy which:

  • Provides access to decent and well remunerated jobs,

  • Facilitates training and retraining of citizens in the face of technological change, and

  • Creates a supportive environment for micro, small and medium businesses and co-operatives.

We can draw inspiration from Inkosi Albert Luthuli, when he says: “I believe that here in South Africa with all our diversities of colour and race, we will show the world a new pattern for democracy. There is a challenge for us to set a new example for all. Let us not side-step this task.”

In his tribute to the South African soldiers who lost their lives with the sinking of the SS Mendi, the poet S.E.K Mqhayi wrote: “Kukhonza mnye ukuze kuphile abanye,” Somebody has to serve, so that others can live.

Can we, in this spirit, say: we have built a better South Africa, with a more inclusive economy, and all citizens living in dignity, advancing economically, over generations to come.

Ke-a-leboha Na Khensa Ndi-a-livhuwa Ngiyathokoza


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