Chairperson, hon members, we thank you for being here on this cold morning in Cape Town. It has been exactly one year since the appointment of the new government and nearly three months since this year's budget was presented to the House.
Last year's financial accounts are now closed. Allow me to begin with a word of appreciation for the many thousands of public servants who have quietly and diligently kept orderly account books over the past year, contributing to sound audit reports and measurable value for money in government expenditure. The heroes of good governance are these honest, hard-working officials, and we should never forget them. The revenue at our disposal and effective stewardship of our public resources would not be possible without their ordinary and disciplined patience with double-entry record-keeping in the public accounts.
Yes, I know there is much to be done to improve public accounting, but the fact that we can meet today, six weeks after the close of the financial year, and comment on the fiscal outcome with confidence, that we have the numbers at our disposal, is testament to the sound foundations that are in place, and we must compliment the work of the Accountant-General, the Auditor-General and our Accounting Standards Board.
Chairperson, the books have been closed - yes, please, applaud them, as small a number as we are. [Applause.] The books have been closed, indeed. Revenue was about R8 billion more than we expected, and expenditure a bit less. The budget deficit was 6,7% of gross domestic product, GDP, rather than the 7,3% that was anticipated, though considerably wider, as we have explained many times, than the 1% of GDP recorded in 2008-09. The Ministers' Committee on the Budget and the Treasury has begun work on next year's Budget. Preliminary data suggest that we will see moderate economic growth this year, perhaps somewhat higher than we projected in February, but last week's employment statistics from South Africa were a sobering reminder that more must be done, more urgently, to restructure our economy and create jobs, particularly for young people. Nationally and internationally, economic and financial developments continue to present formidable challenges both to our understanding of the growth and development process and to the practical implementation of policy and government programmes.
We have been witness to some extraordinary events unfolding in Europe over the past weeks. In fact, we should be very proud about South Africa's agility, compared to the very slow responses that we have seen in Europe over the past weeks.
After months of uncertainty and inaction, the European Union, EU, has taken action to ward off a further crisis in the financial markets. Despite immense public anger and protest action, the government of Greece has been obliged to enact a 30 billion euro fiscal curtailment programme, while negotiating a 110 billion euro debt restructuring arrangement with member countries of the EU and multilateral financial institutions.
Several other European economies face the possibility of similar difficulties, and questions are being asked about the sustainability of the European Union itself. Late on Sunday, the EU and the International Monetary Fund, IMF, agreed to a historically unprecedented almost one trillion euro financial support programme.
So, on the one hand, the global recession of 2008-09 appears to be over. Many economies, including our own, have experienced encouraging growth, since then, in trade and activity over the past six months. Yet, on the other hand, there is widespread concern that the fiscal debt problems of the Organisation for Economic Co-operation and Development, OECD, countries will spill over into another financial crisis and a second wave of trade and employment cutbacks might follow.
The problems are most severe for countries that entered the recession with high levels of public debt, in several cases in excess of 100% of GDP. Between 2004 and 2007, at the height of the global boom, Greece was running a budget deficit of 6,5% of GDP, with debt averaging 106% of GDP. Today, Greece's debt is 140% of GDP, and the budget deficit was 13% of GDP last year. Compare our numbers, ladies and gentlemen, and you can proudly beat your chests.
Though we are not in this position, we need to take a closer look at the current turbulence in global finances, because the underlying trends may hold lessons for our own development path. How did the other countries get into such difficulties? The immediate crisis is typically straightforward: It is a story that has taken many forms, in many countries, over many centuries. Unsustainable borrowing is the mirror image of imprudent lending, both fuelled by an unrealistic expectation that good times will last forever. When the bubble bursts, borrowers pull back their plans and lenders withdraw credit, trade declines, unemployment rises and businesses come under stress.
But this cycle of market euphoria and disillusion is just the surface manifestation of underlying structural imbalances. In the United States, for too long, consumption spending ran ahead of production, and American consumers relied on foreign savers. The party came to an end, most dramatically in the collapse of the sub-prime housing credits.
In many European countries, the underlying problems are rather different, embedded in difficult to change social institutions: pension systems that are unsustainable because life expectancy is now much higher than it was when these benefit schemes were designed; public sector wage and employment trends that are unaffordable; tax systems that have failed to keep pace with business modernisation; and industries that have been left behind by global trends in trade and technology.
By contrast, the South African overall fiscal position is in good health, and we must emphasise that. Consistent with our countercyclical stance, we were running a fiscal surplus before the crisis broke, as we've told you many times, and debt was 27% of GDP. We can, therefore, respond to the crisis - and have responded to the crisis - with a wider deficit for several years, without threatening the integrity of the public finances. We will maintain our fiscal strategy and, at the same time, address some key development challenges that lie ahead.
We have not yet made enough progress in our social security and retirement reform agenda, for instance. We also need to give attention to public sector employment, where we have made substantial improvements to remuneration and career progression in recent years. Over the period ahead, we need to ensure that we keep the right balance between paying better wages and salaries, investing in productivity improvements and employing more public servants in front-line services.
Thirdly, in growing the wider economy, broadening participation in deepening trade and strengthening our revenue base, we have recognised that a new growth path is needed, that industrial policy has to be founded on a well-considered action plan, which we now have, and that we need to do more to promote a dynamic economy, capable of responding both to domestic demand and international opportunities.
What we must emphasise, ladies and gentlemen, is that there is no shortcut to job creation. We have to work harder, more intensively, and focus on the right issues in order to create jobs, particularly for our young people, and develop a new level of creativity if we are going to position South Africa in the new global context.
So, there is much to be learnt from the international experience, and I hope that this committee and members will keep a watchful eye on Europe and the developments over the next few months. We will no doubt feel some of the effects of the uncertainty in financial markets and possible downturn in trade again over the period ahead. However, the primary lesson is that we must remain focused on our own long-term structural growth and development challenges. These are different in very important respects from the European or Asian situation, and we have to construct a development path that is suited to our own circumstances, taking into account our commitment to and shared interest in Africa and the region around us.
As many commentators have noted, while we have become a more integrated community over the past sixteen years, we remain a profoundly unequal society. There are too many have-nots and too few haves. What must we do to become more equal? This is the question that all of us need to take on more assertively. How do we overcome the economic gulf between rich and poor? How do we give practical meaning to our commitment to a South Africa that, indeed, belongs to all?
We should not fall into the trap of thinking that there is an easy road to this goal. Economic history is littered with examples of interventions that were short-sighted and self-defeating, policy measures that ignored their unintended negative effects. Even successful and necessary interventions require careful balancing, but there are clear signposts we need to follow, I would submit.
One is that employment is a key success factor. Income support and welfare services can contribute to poverty reduction and education is an important enabling condition, but if work seekers cannot find jobs, then the unemployment fault line remains a formidable dividing line between opportunity and vulnerability, between progress and despair. Similarly, the review of our further education institutions and the Sector Education and Training Authorities, SETAs, that my colleague Minister Nzimande has undertaken is a necessary and critical reform programme, for long-term growth and development has to be accompanied by more effective and better targeted skills development, training and vocational education.
A range of fiscal interventions is also needed, some new and some reinforcements of existing programmes. These include a countercyclical policy stance, focused especially on infrastructure investment, strengthening of the Expanded Public Works Programme, EPWP, targeted relief and income support programmes, trade promotion, capacity-building and infrastructure investment in municipalities and, more importantly, as we have said on many occasions, measures focused on youth employment. Responsibility for these and other initiatives is now explicitly set out in the performance agreements of the economic cluster Ministers with the President whose mandate, President Zuma has rightly determined, is firmly focused on job creation challenges.
I have already pointed to another signpost - you see what the cold weather in Cape Town does - with important implications for both fiscal sustainability and the long-term trend in income distribution. I refer to the still outstanding work shared amongst several Ministers and departments for social security reform and the financing of health services, but income distribution is not only an outcome of public policy and programmes; it is also shaped by social norms, remuneration practices and the exercise of power and privilege.
Extreme earnings disparities cause offence not just when they are associated with profiteering or financial malfeasance, but also when the reward for honest work seems disproportionate or weakly aligned with incentives. There is a national discourse needed, aimed at moderating high- earning remuneration levels within our large corporations, including state- owned enterprises, for the social dimensions of earnings trends can surely not be ignored in the economic calculus of risk and rewards. We are creating a dangerous culture in South Africa, and the divide between the have-nots and the haves will only grow, much to our detriment. Alongside the economic policy responsibilities we share with several other Ministries, much of the Treasury's work is focused on integrity, accountability and value for money in the use of public funds. This is an especially difficult challenge in times of economic stringency. President Zuma has called for all of us to do things differently, to ensure that we bring better services to South Africans, efficiently and effectively. This is the central aim of our budget process. In the period ahead, there will be further reforms to the budgeting system, taking into account the new performance mandates of Ministers and with a special focus on monitoring and measuring performance and progress against identified targets.
We are also mindful of the need for further progress in financial management, supply chain management, human resource management and governance of public entities. I need to express my appreciation for the work of parliamentary committees in strengthening oversight of government spending and, in particular, for the diligence of the Standing Committee on Public Accounts.
We must also thank our trade unions and other organisations for their support in our call to fight corruption. We must intensify our efforts to root out this culture of easy money. Instead, we must surely aim to be able to say: I've worked hard, done creative things, saved and invested, and made this money myself, rather than taking it from the public purse. [Applause.] Under this spotlight is a very considerable share of national income. In the current financial year, national and provincial government will spend R907 billion, 33,6% of the GDP - up from 28% just five years ago. That is a lot of money, and if we can't look after it, then we are in trouble.
Of course, the institution that really looks after our money is the SA Revenue Service that provides government with funds to finance public services that require that sufficient resources be raised from the economy to pay for these services. In this respect, the SA Revenue Service, Sars, has provided a sure foundation to our fiscus by raising the financial resources for expanded and accelerated service delivery.
In this respect, we must all thank the millions of honest taxpayers who continue to contribute to the growth and development of our country, especially in these most difficult economic conditions. It remains a central focus of Sars's work that all taxpayers should pay their fair share. This, regrettably, is still not the case; otherwise I suppose Sars wouldn't have a job. Several further steps will be taken to improve compliance in the year ahead.
Third party data from employers and financial institutions has proved highly effective in identifying cases of tax evasion, including employers withholding pay as you earn, PAYE, deductions and taxpayers failing to disclose interest and other income. Other sources of data, including the stock exchange data and registration data from other government departments, such as Home Affairs and Companies and Intellectual Properties Registration Office, Cipro, provide further scope for closing the net on the noncompliant.
Using data from the Department of Social Development, the National Prosecuting Authority, the Special Investigation Unit, and Sars, we have been able to identify 200 000 individuals who appear to be collecting social service grants unlawfully. Through verification activities countrywide, the authorities will now be in a position not only to collect taxes due from such individuals and apply the relevant punitive measures, but also to ensure that continued payments to such persons are discontinued with immediate effect, with the co-operation of the Department of Social Development.
From September this year, Sars will require all those receiving any form of employment income, including those below the tax threshold, to be registered with Sars to help reduce the scope for noncompliance. The net is also closing in on those who have sought refuge in tax havens. In the aftermath of the global financial crisis, there has been a welcome acceptance of the need for greater transparency of financial dealings. In the tax arena, a number of jurisdictions that have previously been unwilling to share information with Sars have now instead signalled their willingness to do so.
The success of collaboration between tax, financial and enforcement agencies in the broader financial and justice systems is also evident from the significant progress made in the early identification and more efficient dismantling of complex fraudulent schemes aimed at abusing the trust of citizens. I can today report that further evidence of such collaboration was demonstrated in the early hours of this morning in Durban and Pretoria where Sars investigators, assisted by the SA Police, clamped down on a company listed on the Johannesburg Alternative Stock Exchange, suspected to be involved in another multimillion rand suspected fraudulent investment scheme, involving the abuse of the trust of vulnerable citizens. This time the product is a so-called immune booster pack for HIV/Aids sufferers.
Those who seek to abuse the value added tax, VAT, system to defraud the fiscus will also be pursued intensely, as recent arrests have shown. Increased export controls, as part of the customs modernisation programme, will assist Sars in identifying fraudulent VAT refunds linked to exports.
Sars and the Department of Home Affairs have developed a real-time risk- based movement control system which significantly enhances our capability to streamline the movement of goods and persons through our ports, while, at the same time, stopping unwanted goods and people. Both Home Affairs and Sars are to be complimented on this development. It is a perfect example of co-operative governance in action. The system is currently being implemented in all key ports of entry ahead of the 2010 Fifa Soccer World Cup.
At the same time, continued enforcement actions by customs and enforcement units in Sars, in conjunction with the SA Police Service, the Directorate of Priority Crimes and a number of external stakeholders, have already made a major impact in the smuggling, manufacturing and distribution of counterfeit goods.
The Financial Intelligence Centre, FIC, continues to play an important role in helping to identify the proceeds of crime, money laundering and the financing of terrorism. In the past year, the centre identified R66 billion that passed through bank accounts in South Africa as suspicious transactions, requiring further investigation by South African law enforcement agencies.
Equally important is the work of the Public Investment Corporation, PIC, and the Government Employees Pension Fund, GEPF. The GEPF is governed by a board on which members and the state as employer are equally represented. The funds of the GEPF are invested by the PIC and during the year up to March 2009, the PIC's assets under management declined from R786 billion to R739 billion, largely as a result of what we see in the markets. In the written speech, you will see a number of examples of the excellent work that the PIC has done.
Chairperson, thank you very much for this opportunity to present some elements of what we will be doing in the year ahead, and I look forward to the debate. Thank you very much. [Applause.]