Cape Town - 101027 - Pravin Gordhan, minister of finance, delivered the Mid Term Budget report today at Parliament in Cape Town - Photo: Matthew Jordaan

The Budget unveiled by Finance Minister Pravin Gordhan takes government spending past the R1 trillion mark for the first time – but also reduces the country’s debt, gives taxpayers and small businesses a break and puts a little extra in the pockets of state pensioners and those on grants.

It also lops R5.8 billion off the R20bn cost of the Gauteng Freeway Improvement Programme, meaning while tolling will go ahead, a steeper discount will be possible for road-users.

Gordhan’s third Budget will see spending run to R1.1 trillion next year – 32 percent of GDP. It’s designed to put the country on an investment-led growth path that will create jobs and see billions of rand ploughed into much-needed infrastructure, without cutting back on social support, health or education.

Briefing journalists on Wednesday before delivering his speech in parliament, Gordhan said risks in the global economy might persist for up to a decade. “We can’t wait for Europe to recover – we have to find our own way through this crisis.”

Billions would be needed to refurbish schools, hospitals and creaking municipal water and electricity systems, as well as the road, rail and port projects that all form part of the infrastructure development drive announced by President Jacob Zuma in his state of the nation address.

Treasury’s Budget Review lists 43 major projects adding up to expenditure of R3.2 trillion. Over the next three years, approved and budgeted infrastructure plans amount to R845 billion, of which just under R300 bn is in energy and R262 bn in logistics and transport projects.

Where will the money come from?

“We’ll find the money,” Gordhan pledged.

He said the government had a “sovereign framework” of about R4 trillion in resources available to it over the next three years.

It would fund those projects that were not already funded, or part-funded, from that.

This would involve state owned enterprises, development finance bodies and big business and would be overseen by the Presidential Infrastructure Coordinating Commission.

Gordhan said the government had to show it had the will and the ability to implement and deliver – and that it got value for every rand it spent.

That mean boosting the capacity of the state and dealing with the fraud and corruption that has seen billions in public funds siphoned off into the pockets of crooked officials. A new national procurement and monitoring system would help shut out “a minority” of civil servants engaged in “dirty activity” and keep a lid on prices often routinely inflated by suppliers.

South Africa had to become more competitive to compete in a global market where the centuries-old dominance of Western economies had given way to those of China, Brazil, India and Russia and needed to explore opportunities not only in the BRICS but also in Africa.

“Adaptability is the key word for this period,” Gordhan said.

Plans to reduce public sector wage increases to a target of one percent a year are likely to anger unions – but Gordhan said sacrifices had to be made.

“If you’re going to overcome inequality in this country, you’re not going to do it by sitting in your comfort zones – you must ask what am I willing to sacrifice. It’s a tough question but without sacrifices we’re not going to get the stability and prosperity we need for all South Africans.”

In his speech he said partnerships would see the country through the economic crisis. “We are not doing well enough in growing our economy and creating jobs for our young people.”

While economic uncertainty would continue for some time. “we have a programme of economic change that can steadily roll back unemployment, poverty and inequality”.

But it needed a collective effort. Giving the Budget “practical effect cannot be a project of government alone”.

“Our development requires every one of us to ask – what can I do for my country, my people, our future.

“We have to see business investing in our future as well.”

Social spending will amount to 58 percent of government expenditure next year, up from 49 percent a decade ago. With 16,3 million people - more than a third of the population - receiving social grants, that money also pays for free basic water and electricity, housing and no-fee schools in poor communities.

Without such support South Africa risked instability – but it was not “a substitute for economic growth and job creation”, Gordhan said.

On jobs, Gordhan said more than R1 billion had been committed to job creation projects selected from the 2 500 applications received since the Jobs fund he announced last year started operating in June.

He signalled impatience with labour’s stonewalling of proposal to spur youth employment that were announced last year but have been stalled in Nedlac. He said labour’s concerns could be addressed in the design and implementation of the plan to subisidise first-time job entrants, adding: “we would all like to see greater urgency in resolving this matter.

“We have to move beyond debate, and find the policy levers that will make a difference to the pace and dynamics of job creation across the whole of our economy.”

Growth would likely slow from three percent to 2,7 percent in 2012 recovering only modestly to 3.6 and 4.2 percent in 2013/14 – not enough to reduce poverty and unemployment.

Spending is up by an extra R55.9 billion over the next three years, representing a real growth in non-interest expenditure of 2,6 percent.

Gordhan said his fiscal framework was intended to narrow the gap between spending and revenue, support the economy, strengthen capital investment and improve public service performance.

“Total spending will reach R1,1 trillion next year, representing some 32 percent of GDP.”

He forecast a budget deficit of 4,6 percent of GDP – against economists’ fears it would grow past five percent, triggering a downgrade of SA’s creditworthiness by ratings agencies.

Unlike recession-hit Europe or the United States, South Africa’s finances were “in good health”, Gordhan said. He announced R9,5 billion in personal income tax relief. - Gaye Davis from Independent Newspapers’ Political Bureau