Fiscal & Revenue Proposals for 2012/13 Submission by Business Unity SA

1. Fiscal & Revenue Proposals for 2012/13 Submission by Business Unity SA to the Standing Committee on Finance & Select Committee on Finance Presented by Prof. Raymond Parsons BUSA Deputy CEO 28 February 2012

2. INTRODUCTION • Economic Overview • Positive Features of the Budget • Some Vulnerabilities and Risks in the 2012 Budget

3. ECONOMIC OVERVIEWGlobal Economic Outlook • BUSA shares the Minister’s assessment of SA’s economic prospects – similar to BUSA’s submission on 15 Feb • Global economic outlook marginally better • Domestic economy remains vulnerable to a volatile global environment • Asymmetric growth remains between developed countries and developing economies (China, India) • BUSA agrees that SA needs to be competitive in a changing world • This will require flexibility, innovation and leadership in both public and private sectors

4. ECONOMIC OVERVIEWDomestic Economic Outlook • BUSA agrees: real GDP 2.7% in 2012, possibly rising to >3% in 2013 • But these positive growth rates inadequate to meet socio-economic challenges • Unemployment remains high at 23.9% • 850 000 new jobs projected to be created over next 3 years – 75% in the private sector • Budget rightly adopts pro-growth stance

5. POSITIVE FEATURES OF THE 2012 BUDGETGeneral Approach • BUSA views 2012/13 Budget as credible, broadly balanced and confidence building • BUSA welcomes recognition of the “substantial role” of private sector in growth and job creation • Emphasis on the need for policy direction to be certain, predictable and coherent • Budget creates “window of opportunity” to do things differently and better • Budget should encourage longer term perspective on SA’s growth and development, and required policy changes

6. POSITIVE FEATURES OF THE 2012 BUDGETSpecific Positive Aspects • Debt profile appears more sustainable • Commitment to keep fiscus on sustainable track • Central priority on expanded infrastructure • PPP framework sound • Forthcoming Infrastructure Summit • Tax relief for SMMEs • Support for improved competitiveness • Mining – emphasis on need to leverage buoyancy in commodity markets • Anti-fraud and anti-corruption initiatives • Further engagement on carbon tax • Efforts to reduce economic impact of Gauteng tolls • Support for local municipalities • Realistic phasing in of NHI and social security reform • Emphasis on Youth Wage Subsidy Scheme -> 178000 new jobs • Pre-budget consultation with Nedlac - mutually valuable

7. SOME VULNERABILITIES & RISKS IN THE BUDGETKeeping recurrent state spending under control • Headline fiscal ratios appear healthy but can mask vulnerabilities • State debt costs remain fastest growing item of state spending • Further accidents to growth and/or interest rates could push ratio of gross debt to GDP to danger limit of 50% • Debt trap could become significant risk, jeopardising development goals

8. SOME VULNERABILITIES & RISKS IN THE BUDGETImplementing the Infrastructural Programme • Achilles' heel: possible failure to create “a capable state focussed on delivery” • Minister has acknowledged weaknesses in the rollout of infrastructure projects • BUSA supports emphasis in Budget & NDP on professionalism in the public service • Ways in which private sector can assist should be explored • Administered prices • Cumulative effect of excessive rises negatively impacting economic performance • SONA acknowledgment of electricity price challenge welcomed • Better planned and coordinated approach to issues of affordability is needed • SOEs • Essential that their role be appropriately defined and managed • Report from Presidential Commission on the Performance of SOEs • Need to enlarge investor base and develop cost-effective financing models

9. SOME VULNERABILITIES & RISKS IN THE BUDGETTax and related changes • Lack of prior consultation on tax changes -> difficulty in anticipating unintended consequences for the economy • Combined impact of: • Increase in fuel levy • Increase in electricity levy • Imposition of e-tolls could seriously impact some sectors (e.g. transport, travel & tourism) - Parliament may need to interrogate these aspects with sectors concerned • Recent changes to tax legislation have increased complexity of tax assessments

10. SOME VULNERABILITIES & RISKS IN THE BUDGETSocial Spending • Remains essential to maintain effective social safety net • Budget Speech: social spending comprises 58% of government expenditure, up from 49% in 2002 • 1/3 of SA population receives a grant • Minister: redistribution is “not a substitute for economic growth and job creation” • The more SA can push up growth & employment, the less dependence there will be on welfare

11. CONCLUSION • Most important lesson of global economic crises: - peril of procrastination • NGP, NDP and 2012 Budget must help create an environment which encourages long–term thinking • Following 2012 Budget: SA must implement effectively what has been agreed and funded • BUSA remains pledged to assist government wherever possible

12. Hamlet’s version of SA’s Economic Priorities “To grow, or not to grow – that is the question. Whether ‘tis nobler for the economy to suffer the slings and arrows of outrageous global markets. Or take arms against a sea of internal troubles, and by opposing them – to end them? To delay – to procrastinate no more – and by effective delivery to say we end the heart-ache and the thousand shocks the SA economy is heir to. ‘Tis a consummation devoutly to be wished.” (With apologies to Shakespeare)

13. Thank you