More on growth from ECON621

The #CityTalk discussion on Twitter last night

Build-your-own: Budget at a glance

Tomorrow afternoon the Minister of Finance will be reading the Budget Speech in Parliament and this week everyone is opining about it. Chris Hart of Investment Solutions has called it “The most critical Budget since 1994”. He argues for a need for a fiscal policy shift and raises a number of points:

• Recognition of the difference between poverty alleviation and poverty reduction. He argues that poverty alleviation shifts resources from production/investment to consumption and fosters dependency. The budget should rather pursue poverty reduction outcomes that come from economic growth.
• The tax base is at the point of exhaustion and spending should be brought in line with available resources. Additional resources can be released by improving government effectiveness and reducing corruption.
• Government should shift expenditure to make the economy more competitive – i.e. invest in the tax base.
• Finally he makes a strong case in favour of the role of small business in driving growth and job creation. Government can support SMEs through simplification of tax policy, shifting the tax burden onto consumption, away from savings and investment and deregulation and the removal of obstacles to SME formation and growth.

Cees Bruggemans of FNB has linked his budget comments to President Zuma’s State of the Nation Address and how South Africa is gearing up for a growth boost through infrastructure investment. While more details are awaited on the infrastructure programmes, there has been speculation about financing the spending. In the Mail and Guardian Nickolaus Bauer has wondered about a possible combination of only limited tax relief, a possible increase in the VAT rate and user charges as sources of finance. In a related article Linley Donnelly reported a number of economists’ view that the state can easily borrow the money. Public private partnerships will also play a role.

Instead of offering more opinions of my own, I have decided to put together a little resource for those listening to the Budget Speech tomorrow afternoon. Students love templates, so here is one to build-your-own Budget at a glance:

 

Key points to listen out for…	Your notes!
Economic outlook: What does the global economy imply for the SA economy?  What does that mean for: o  The need to spend? o  The ability to collect revenue?
Fiscal framework: ·  Tax collection in 2011/12 ·  Spending over R1 trillion? ·   And relative to GDP? ·  Public service wage bill ·  Budget deficit to GDP ·  Public borrowing requirement ·  Government debt to GDP
Spending proposals: ·  Social security, grants ·  Infrastructure investment and maintenance o  Energy, transport, health facilities, education infrastructure, ·  Expanded public works programme ·  Support of structural change, industrial policy, business development ·  Education ·  Health (NHI?) ·  Local government, housing and community amenities ·  Public order and safety ·  Environmental protection and green economy ·  Science and technology
Tax proposals: ·  Personal income tax ·  VAT ·  Company tax ·  Other taxes? ·  User charges

If you are not watching the broadcast, you can always use Twitter to follow the speech. Along with all the economists, @mailandguardian should be tweeting live. Also, Chris Hart and JP Landman is having a budget face-off that you can follow via @InvestmentSolZA.

SONA and the WHERE of growth and jobs

Yesterday evening President Zuma delivered the State of the Nation Address. When one considers the state of a nation you need to mention a number of things. He started with the familiar challenges of unemployment, poverty and inequality. He mentioned that unemployment is structural and made the case that government have been taking steps and will be taking steps to meet the challenge. These steps include increased spending on social security, infrastructure development to stimulate the economy and the establishment of the National Planning Commission. President Zuma also reviewed some of the progress on the undertakings made in last year’s SONA – it is easy to forget about the Jobs Fund, incentives for new industrial projects, local content procurement regulations and the R10 billion that the IDC set aside for job creation. The president’s overview shows that these things take time to get going, never mind produce any results and I think that this is a key point to keep in mind about this year’s promises.

The address identified a number of key issues for 2012. These are being discussed everywhere (see Carien du Plessis’ list) and I do not want to get into all the details again. The list includes:

• An infrastructure development drive

This is driven and overseen by the Presidential Infrastructure Coordinating Commission. It includes five geographically focused programmes and social infrastructure programmes. The argument is “The massive investment in infrastructure must leave more than just power stations, rail-lines, dams and roads. It must industrialise the country, generate skills and boost much needed job creation”.

• The extension of basic services, including housing, housing, electricity costs and water supply.

• Education – where the President argued that the focus on education is paying off and 300 million rand is being allocated for the preparatory work towards building new universities in Mpumalanga and Northern Cape.

There was also mention of:

• Health

• Land reform

• BBBEE

• Crime and corruption

With something as broad as the state of a nation there are many things to mention and commentators found their hobbyhorses in the stable: failures in education and healthcare were glossed over, crime and corruption were mentioned in passing, there was hardly a mention of SMMEs, women or the environment.

My concern is with where economic activity occurs and there are quite a few aspects that have clear spatial implications. Something like the Gauteng-Durban logistics corridor makes sense as it is already a main freight corridor, but there are serious questions about the manganese export channel through the Port of Ngqura. It is also not clear that there are sufficient agglomeration forces at work to establish a successful South-Eastern node to improve the industrial and agricultural development and export capacity of the Eastern Cape region. Government may revitalize Mthatha and add some infrastructure, but what about the pooled labour market and supplier of intermediates that an agglomeration requires? I have similar questions about the “enormous potential along the West coast. Related to the spatial story is the question of provincial and local capacity to deliver. The major infrastructure projects may be driven by PICC, but a large share of everything that the government sets out to do have be delivered at Provincial and local government level and in many aspects they are failing.

I realise that the questions cannot be answered be answered in a state of the nation address, but I do think they should be kept in mind for the Budget Speech on the 22^nd of February and for the Department of Trade and Industry’s budget vote.

State of the Nation Address

I hope to post more of an overview with some comments tomorrow, but for now here is the Mail & Guardian's analysis and a quick word cloud to give you an idea of what it was all about (it seems that government wants to take the lead with infrastructure projects!):