KZN 2010/2011 Budget Debate - Treasury (Vote 6)


By Roman Liptak MPL

KwaZulu-Natal Legislature
Pietermaritzburg : 13 April 2010


Chairperson, if this provincial budget is to prove sustainable over the entire MTEF – and we do hope it will - future tax revenue needs to be higher than what national Treasury has previously estimated. And it can only be higher as a result of three potential factors: firstly, higher economic growth; secondly, faster recovery in corporate income tax; and thirdly, higher tax rates.


As we emerge from the recession, the pace of recovery will likely remain muted as economic activity continues to be subdued. Even where the corporate sector successfully returns to profits, losses built up during the recession will mean that it may take a few years until we start seeing income tax revenue from many businesses. This is the background to the provincial budget before us.


With the setting of taxes and their collection out of the orbit of the provincial government, it would appear that the only lever we have is economic growth. The budget implies that the government is relying on an extended economic upswing beyond three years to deliver firm growth. That is possible, but not guaranteed. This House must be clear that by adopting this budget, we are taking a calculated risk.


I wish to advance the argument about revenue even if this House feels it is either too abstract, or it is a national competency. I believe this argument needs to be spelled out here for two reasons. Firstly, we have an obligation to adjust the expectations of individual provincial government departments with regards to their future spending. And secondly, there are ways for this government to encourage entrepreneurial activity in the province and indirectly boost revenue from such activity.


In our response to the State of the Province, the IFP advocated cutting red tape as a way of making it easier to do business in KwaZulu-Natal. Today, I would like to take this proposal further by appealing to both the Office of the Premier and the Department of Economic Development to look into options for the formalisation of informal businesses in this province. These measures could include concessions for informal businesses to register.


The proposal for a wage subsidy to support youth employment, as presented in the national budget, could inspire economic policy on a smaller scale in the province. Working through various public entities, wage subsidy could provide employers with a means to claim back part of wages through the tax system.


The wage subsidy proposal has the strong backing of business, simply because it assumes that a major reason for high youth unemployment is the high cost of entry-level salaries in unionised sectors of the economy. This is a fact and a major impediment to economic growth.


Chairperson, if these arguments seem distant, our overdraft certainly isn’t. The Official Opposition shares provincial Treasury’s concerns about it. Interest on this overdraft is already the fastest growing expenditure item on the budget. The cost of servicing the overdraft - in itself a key measure of fiscal stability - continues to rise as a percentage of provincial GDP, and the revenue ratio cannot be increased indefinitely. There is a real risk that the overdraft as a proportion of our public debt can constrain future economic growth.


Sustainability of this budget, given the overdraft, depends on Treasury’s ability to constrain average annual real expenditure growth to 2 percent over the MTEF. I should mention that its projections rely on restraining government’s compensation bill to an average of 7 percent a year and on cutting unnecessary expenditure. Here we urge a more vigorous debate about wage demands which impose unfunded mandates on the budgets of individual government departments and drive us into an inflationary spiral.


Chairperson, if we are to do more with less, as the Hon. MEC for Finance put it, we have to look beyond the Provincial Recovery Plan, wh acknowledge, is working. We have to rationalise the public sector and reprioritise spending to ensure the bulk of the budget supports service delivery and job creation.


We are fully aware that the significant portion of the provincial budget goes into the social sector and that social sectors have sizeable staff components. However, the cost of administration remains too high. One only needs to compare the proportion of the budget for corporate services and for service delivery in the Department of Community Safety and Liaison. And it is not only figures, but trends that concern us. One Department where administration is growing at the expense of service delivery is Social Development.


In conclusion and on a lighter note, I find it amusing when Hon. Krog is reprimanded by Hon. MEC for Finance, as he was, for quoting outdated figures. I am sure Hon. Krog would be happy to quote the latest figures – in fact, we all would be, if we could. Government’s openness today is greater than at any time during the previous term.


But I would still like to encourage the Hon. MEC for Finance towards even greater openness by reassuring her that this side of the House can be trusted with Treasury figures. After all, as Members of this Legislature we are overseeing provincial government, not a witness protection programme.


I thank you.


Roman Liptak
078 302 0929