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    T Manuel: Appropriation Bill First Reading debate

    Speaking notes for First Reading Debate: Minister of Finance T Manuel 19 March 2008

    1. I would like to thank this House for the spirit within which the discussions and debates on the Appropriation Bill have been conducted. In a country as divided as ours, and given the sometimes acrimonious debates in this house on various social, political and economic challenges, it is clear that there is a remarkable consensus on issues related to the budget. In particular, that our key public spending priorities are education, health, infrastructure, basic household services and fighting crime; there is almost complete agreement. We may disagree about the exact balance of spending, we may disagree about the state of the capacity to implement and we may differ on precisely how to deliver on various objectives. Nevertheless, the debates in this house show that we agree on much about our national budget.

    2. The call by the President in his State of the nation address to deal with matters in a business 'unusual manner' has certainly taken hold. Our call – Si yim bumba – we are in this together has galvanised our country and the political parties in this house, to come together to face the challenging times ahead united as one country.

    3. From listening to the debates and in reading the reports of the various committees that have deliberated on the Appropriation Bill, there are as many views on where budgets should be increased as there are on 'concerns about absorptive capacity – capacity to spend'. I welcome all these views and comments. They help enrich the debate and keep us on our toes. I also trust that many of these detailed issues on the quality of spending, capacity to spend or value for money will be taken up by the various portfolio and standing committees in deliberations on individual votes. I'll return to the issue of value for money later.

    4. The process of putting the national budget together is a long, complex one. We take seriously the views expressed by members in debates in this house and in the various committees that debate the budget. Through the Ministers' Committee on the Budget, we assure South Africans that the budget is not a technical exercise but a deeply political one, with oversight provided by the executive and legislatures at various points. We also take into account the views of various social formations, including the Peoples' Budget campaign and that of various political parties. We have to balance the needs of all South Africans in the interests of growth and development. The budget must also be set within both a political and economic context which recognises the gains that we have made since 1994 and the challenges that we continue to face in ensuring a better life for all.

    5. In October, the weather forecast suggested a high likelihood of a global economic slowdown. In February, the advent of a global slowdown was upon our doorstep, though there were still questions about its severity and longevity. In just four weeks since the budget, the global economy is looking decidedly more battered and worn. The sale of Bear Sterns to JP Morgan Chase for about a tenth of its value just a week before is a clear sign that the global financial system is in deep trouble and that we have not yet seen the end of the fallout from the sub-prime mortgage crisis. The US has cut interest rates from five and a ¼ percent just a few months ago to two and a ¼ percent this week. The massive injection of liquidity into the US financial system and the steps taken by the US Fed (actually the New York Fed) and the US Treasury to arrange the sale of Bear Sterns is unprecedented.

    6. From the beginning of this year, up to 12 March, our stock market has fallen by about 7,5 percent in dollar terms. During the same period, the Dow Jones Industrial Index has fallen 8,7 percent, Shanghai exchange in China has fallen 20,5 percent, the Mumbai stock exchange has fallen 22,3 percent, the London Footsy has fallen 9,2 percent and the French CAC 40 has fallen 11,3 percent. So yes, Madam Speaker, the world economy is taking strain but our shock absorbers are helping to cushion against the worst effects of this crisis. We have what it takes to ride out this storm. We will be affected, but the policies that we've put in place since 1994 will put us in good stead to avoid the worst effects of the present crisis.

    7. Two factors that are making the present global economic crisis more severe for the worlds poor are food and oil prices. The global food price index produced by the Economist magazine is up 70 percent in the past year. The spot price of maize, the staple diet for many South Africans, has gone up by 30 percent in the past year. In the year January, food inflation in South Africa stood at 13,4 percent. Over the same period, the figure for China is 18,2 percent, for India it is 11,4 percent, in Russia it is 16,7 percent. The factors that are driving up food prices include rising demand for meat due to rising incomes in India and China, increased use of cereals and soyabeans for bio-fuels, rising input costs, variable rainfall in major producers such as Australia and the fall in the dollar. These are global phenomena which impact on the poorest of our people.

    8. This morning, Governor Tito Mboweni reminded us of the steps we have taken to reduce our vulnerability to global shocks. We have over US32 billion dollars in foreign exchange reserves. We have reduced our debt, especially our foreign and short term debt. Our financial system is strong and well regulated. However, it is also worth reminding ourselves that our large current account deficit increases our vulnerability. We have a shortfall between our savings and our investment needs. To fill this gap, we need almost four billion rand a week or foreign savings. We do not want to slow down investment. We need even higher levels of investment to grow this economy, to reduce the scourge of unemployment, to bridge the divides between rich and poor. To do these things, we have to attract foreign investment, in even greater quantities than in the past. We call on all parties to support our endeavours to make this country an attractive destination for foreign investment. We seek a wider partnership with all players, business, labour and community organisations to attract the capital we need, because the alternative is lower growth and even fewer jobs.

    9. Many commentators have suggested that our four percent growth forecast for this year is optimistic. I wish to point out two facts. Firstly, over the past seven years, our macroeconomic forecasts have been closer to the mark than any private sector forecast. Secondly, because we only get two bites at announcing our forecasts, we take great care and diligence in making them. We are confident that we will meet the four percent growth rate and that the economy will accelerate in the outer years of our medium term horizon.

    10. In announcing the Accelerated and Shared Growth Initiative, we identified several binding constraints on faster growth. These include the need for more infrastructure spending, better outcomes on the skills front, higher levels of foreign exchange reserves, lower levels of crime and improved public sector performance. The budget that we've tabled speaks to each of these constraints, seeking to unblock the constraints on higher growth and more inclusive growth.

    11. Our budget reinforces the view that the state is not a passive bystander in the development of this economy. The budget is an instrument of an activist state that seeks to intervene to support higher growth and more equitable growth. The public sector has an important role to play in investing in the infrastructure required to ensure faster economic growth and that will crowd in private sector investment. Our economy faces a series of constraints to higher growth ranging from skills shortages to electricity constraints. Only higher levels of investment in building both human and physical capital will allow us to break the constraints.

    12. The better planting season in 2007 has meant that for many products, our prices have not increased by as much as the rest of the world. Nevertheless, a 30 percent increase in the price of maize and at 13,4 percent increase in the food component of our CPIX basket has meant severe hardships for many South Africans. In the budget, we took steps to increase the school nutrition programme by over 30 percent next year. Social grant increases take account of higher inflation with the state old age grant rising by 8,5 percent and the child support grant by 10 percent. We have also budgeted for a continual expansion of the social security system, extending the number of beneficiaries that receive grants beyond the 12,5 million at present. We continue to monitor the situation and will act in the interests of our people to attempt to protect them from these hardships. But we also know that what we do must be sustainable.

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    Last edited by duncan drennan; 19-Mar-08 at 09:39 PM.

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