Prudent management of public funds hold the key to economic revival

● The 2022 budget provides the most realistic chance for inclusive economic growth. It represents a careful balance between the need to support poor and vulnerable South Africans and the need to restore public finances and lay a solid foundation for future economic prosperity.

Conscious of the economic hardship brought about by the pandemic, this budget allocates 59.5% of the consolidated spending over the medium term to address poverty and unemployment and support economic recovery.

The special Covid social relief of distress grant has been extended for a further 12 months, and there’s additional funding for health, education and the presidential employment initiative.

SA already has among the highest spend on social transfers of all developing countries. Our social support system expenditure exceeds R1-trillion a year over the medium-term expenditure framework, and about 46% of the population receive some kind of social grant. But grants should not become a way to compensate those who have been shut out. Instead, we should create a shared and inclusive economy.

Creating employment is the channel through which we can turn the tide on our socioeconomic challenges. This is the logic that underpins our approach to growth, as expressed in the Economic Reconstruction and Recovery Plan, which is based on a clear and stable macroeconomic framework complemented by structural reforms aimed at putting our growth trajectory on a sustainably higher path.

These include interventions to stimulate demand through investment in infrastructure, accompanied by employment programmes and social transfers. At the same time, modernising network industries such as transport, energy and communications will support an increase in the economy’s productive capacity and reduce the cost of doing business.

Our commitment to restoring the health of public finances is a recognition that our prior fiscal trajectory was unsustainable. An expansionary fiscal policy since 2009 not only failed to lift economic growth, it resulted in debt service costs increasingly crowding out spending on basic services.

The consolidated spending budget grew from R712.8bn in 2008/2009 to R2.08-trillion in 2021/2022 — an average annual increase of 8.6%. Debt service costs average R333.4bn a year over the medium term, larger than the spending on each of health, policing or basic education.

While corruption played a major role in poor outcomes, high spending for low returns has been a hallmark for too long. This budget is a step towards restoring baselines that have been compromised by a succession of bailouts for state-owned enterprises, and proposes no new spending cuts.

We are in a somewhat improved fiscal position. Tax collection over the past 12 months has been stronger than expected, with elevated commodity prices boosting earnings in the mining sector, and the removal of lockdown restrictions spurring a recovery in activity. Nevertheless, prudent management of public funds means not committing to permanent spending on the back of a windfall and ensuring the correct allocation of resources. That is why we have embarked on spending reviews that will guide these allocations.