Effect of 2013 Budget Speech on Growth and Unemployment

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1. Introduction The main purpose of the budget speech is to provide information on the performance of the economy and provide solutions, to challenges of economic growth, unemployment and inflation. The 2013 budget speech was delivered after the introduction of the National Development Plan. This plan emphasizes accelerated economic growth, elimination of poverty and reduced inequality as its main focus. The budget speech therefore needs to provide details of how fiscal policy will align with this plan in the medium term. 2. Economic Growth Economic growth is measured by how much a nation’s economy spends on final goods and services that are produced within that country for a particular period of time i.e Gross Domestic Product (GDP). GDP growth is a primary indicator of the health of an economy. Strong GDP growth generally indicates an economy where investment is increasing and jobs are being created. (National Treasury, Economic outlook, 2013) Economists have diverging views about how economic growth is best achieved in the national context. According to Keynes, government intervention is central to stimulate a sluggish economy. For liberals like Adam Smith or Friedman, market forces are best placed to achieve economic growth with only limited state intervention. Since 1994, the South African government has adopted a Keynesian approach to economic growth. (The New York Times 5 March 2013) In order to achieve long-run economic growth, supply factors have to be present in order to cause an increase in production capacity in the form of natural resources, labour and capital infrastructure. Sufficient demand for goods produced is a must. (Philip Mohr et al. Pages 583 to 584) Since 2008, the South African economy has experienced a slow rate of growth with GDP from 3% to 2.5% at the end of 2012, and a noted negative growth in 2009 due to the global economic

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