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Budget Speech - Global Economics

            In his 2009 budget speech, then Minister of Finance Trevor Manuel announced his response to the unfolding global economic crisis. With the overarching priority of the South African focus remaining in job creation and growth acceleration, some new changes to the budget were announced with the aim to "reinforce macroeconomic stability. and provide a temporary cushion to the South African economy" (Manuel, 2009:10). The changes he made were larger budget allocations to social welfare spending, to state employment and job creation initiatives, and finally to increased public works investment. Three budget speeches later, economists are now in a position to critically evaluate the success of the measures implemented from 2008-2012. This essay will assess the effectiveness of countercyclical spending in South Africa before moving to a discussion of the wage bill and infrastructure outlays in the context of South Africa as a developmental state. The analysis starts with the broadest measures of success and gradually disaggregates the components of the national budget to reveal the hidden conflicts inherent in any matter of public choice. .
             Since the Keynesian analysis of the 1950s it has become widely accepted that the economic role of the government is not confined only to prudent financial management and balancing. Ocran describes the role of fiscal policy as stimulating economic and social development. In an economic downturn, lower levels of economic activity, lower employment and growth levels and shrinking tax revenue make this goal harder to achieve. Countercyclical fiscal policy entails the notion that during downturns the government should increase measures aimed at employment creation and income subsidization to compensate for losses (Worral, 2009:2). In this system, increased government spending has the additional effect of increasing income both directly and through the consumption multiplier.

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