Gordhan sets New Deal for SA

2012-02-25 09:22

Finance Minister Pravin Gordhan’s budget speech this week announced a set of economic policies strikingly similar – in rhetoric, context and content – to the 1933 New Deal introduced in America to counter the Great Depression.

As with former US president Franklin D Roosevelt’s budget, Gordhan’s budget hinged on the three Rs – Relief (from unemployment), Recovery (of economic activity and growth) and Reform (of the economy away from consumption to infrastructure investment).

When a phalanx of South African fiscal leaders, with Gordhan at its centre, mounted the steps of Parliament this week, it was to deploy a full arsenal of fiscal instruments designed to usher in a new era in economic planning and a “new deal” for the country.

Dressed in dark suits and imbued with a sense of occasion, they arrived armed with the 2012 budget, now dubbed “our new story”. This budget is said to be significant in South African economic history as it marks a shift away from typical neo-liberal economic policies – characterised by stringent constraints in public spending and public sector borrowing – to an increase in public spending and borrowing.

Bongani Khumalo, a financial and fiscal commission economist, says: “One way of coming out of a recession is for the state to lead and fast-track recovery. During the Great Recession, the American state took the lead and introduced measures to stimulate recovery.”

He added: “More importantly, history will remember this budget well because South Africa is one of the few countries in the world that was able to table an expansionary budget during a global economic recession.”

Yet economist Dawie Roodt says the 2012 budget heralds the “initiation of the development state in South Africa after years of talk and debate of the concept. The state is becoming increasingly involved in the economy and Gordhan will play the role of Big Brother.”

Experts agree that the budget shows rigorous technical planning. They concede that this kind of Keynesian planning, characterised by the state playing a greater role in stimulating economic activity and fighting unemployment, often emerges during economic recessions.

It is a series of programmes designed to correct deep-seated problems in the economy and stimulate economic activity, promote growth and counter unemployment Gordhan said: “Our new story, our period of transition, is about building a modern infrastructure, a vibrant economy, a decent quality of life for all, reducing poverty and providing decent employment opportunities.”

At the time of Roosevelt’s new deal, US unemployment stood at 25%. South Africa’s official unemployment rate was reported to be 23.9% in the fourth quarter of 2011.

In the early 1930s, Europe struggled to find a strategy to steer out of the Great Depression.

Last week Gordhan warned: “The global environment remains highly uncertain. While there are signs of a revival in the US economy, much of Europe is in recession and significant financial risks cloud the global outlook.”

In his budget speech this week, Gordhan said advanced economies were projected to grow 1.2% this year, while developing Asia will grow 7.3% and sub-Saharan Africa would grow 5.5%.

Introducing the New Deal in 1933, Roosevelt said: “Throughout the nation men and women, forgotten in the political philosophy of the government, look to us for a more equitable opportunity to share in the distribution of national wealth.”

In 2012, Gordhan appears to be echoing Roosevelt.

Gordhan said: “Every one of the last hundred years has seen our nation overcome obstacles that seemed insurmountable. Some have been beyond our control, the result of changes to the environment to which we were compelled to adjust. Some were the result of our failure to act, even when the solutions were known to us.”

In the wake of the Great Depression of the 1930s, Roosevelt accelerated investment in infrastructure and public works. South Africa is also accelerating investment in infrastructure and social spending in the aftermath of the 2009 recession, which led to massive bailouts of banks and the collapse of others.

South Africa has announced that it has budgeted for public sector projects amounting to R844.5 billion.

Running up to 2015, the infrastructure expenditure is expected to rise by 7.6% each year.

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