Pretoria - The Institute for Democracy in SA (Idasa) has reacted to the 2011 Budget with cautious optimism, but has warned that debt servicing is by far the fastest increasing budget item over the medium-term.
"The economic backdrop to the 2011 Budget does look more favourable, and a note of cautious optimism seems appropriate now. The latest numbers suggest that the South African economy grew by slightly under 3 percent in 2010, and the forecasts of growth rates between 3 percent and 4 percent for the next two years seem realistic," said Len Verwey of Idasa.
He said efficiency and effective reprioritisation become even more important than usual, particularly if the objectives of the New Growth Path of higher and more inclusive growth are to be realised.
However, Verwey said the continued slow recovery of tax revenue meant that deficit financing remained necessary, with a deficit outcome of 5.3 percent of the Growth Domestic Product (GDP) now estimated for 2010/11, and deficits declining from around 5.3 percent in 2011/12 to around 3.8 percent in 2013/14.
"These deficits are necessary not to fund a huge increase in spending, but simply to maintain government spending increases at a very moderate rate over the medium-term. Nevertheless, in nominal terms, the cost of debt-servicing will double from its 2007/08 value to 2013/14, and debt service costs will increase by an annual average of around 16 percent from 2010/11 to 2013/14, or at more than double the proposed rate of increase of allocated expenditure of 7.2 percent," he said.
According to Idasa, though economic recovery in the narrower sense appears to be moderately underway, job creation as well as tax revenue will continue to lag significantly.
"As the Budget Review notes, the South African economy lost a particularly large number of jobs for the degree of output contraction that occurred during the recession," said Verwey.
While some jobs will be created by virtue of the recovery of the global and domestic economy, he said, the targeted interventions are particularly crucial in addressing youth unemployment.
He further advised that it would be necessary to learn from the failures of past policy and implementation.
"Support for small business has not been adequate, despite their potential key contribution in creating jobs. Similarly, the training layoff scheme, which allocated more than R2 billion to provide training allowances as an alternative to retrenchment for workers during the recession, has fallen significantly short in its aims.
"These and similar experiences suggest that better partnership-building between government and other stakeholders is needed if we are to address the jobs crisis. They also point to the informational and administrative challenges of effective labour market intervention," he said.
Verwey said the proposed R9 billion jobs fund was certainly a necessary intervention, but it is imperative that no undue delays hamper the requests for proposals from implementing organisations, that appropriate organisations be selected quickly, and for adequate oversight measures to be put in place to help achievement the desired impact.
"The Budget 2011 reaffirms the government's commitment to promoting innovation through green economy initiatives as a key strategy for fostering growth and job creation. As a first step, the question boils down to whether budget allocations are in fact aligned with these desired policy outcomes," he said.
Verwey said a key challenge for the national government was to ensure that infrastructure investment in the transport sector translated into long term job creation and contributed to overall growth.
In the wake of the recession, many South Africans have become poor, unemployed, vulnerable, and this challenge requires both short-term measures and fundamental structural change.
Strong leadership, responsive institutions, and effective partnerships, according to Verwey, will be necessary to decisively move towards a transformed society.
