Higher govt spending is answer to economic recovery

Thursday, November 5, 2009

Pretoria - Finance Deputy Minister Nhlanhla Nene says higher government spending will help stimulate demand for goods and services thus helping to speed up economic recovery.

"The most successful form of stimulus spending is infrastructure projects because they have both short and longer term benefits and these projects can be curtailed if economic activity picks up," Nene said on Thursday.

He said while higher wages helped to increase demand, they were also a permanent step change in public spending meaning that either taxes would have to rise or spending would have to be cut at some point in the future.

According to Nene government has a strong role to play in stabilising the economy, through its use of fiscal and monetary policy as well as through the regulation of the financial sector.

He pointed out that during the economic crisis countries should take steps to protect jobs through various policy measures adding that having a low debt to GDP ratio going into a crisis was a huge advantage.

"Governments should use the crisis to correct structural weaknesses in the economy including stepping up investment and skills development," said Nene.

He was speaking at an event organised by the University of KwaZulu-Natal in Durban.