The 2018 mid-term budget speech in a nutshell
Finance minister Tito Mboweni has delivered his maiden medium-term budget policy speech, showing how tight South Africa’s finances are – and how state companies continue to be a burden.
Despite tax increases announced in February, revenue growth projections have been revised down.
Tax revenue has been revised down by R27.4 billion in 2018/19, R24.7 billion in 2019/20 and R33 billion in 2020/21 relative to the 2018 Budget. This mainly reflects higher-than-expected VAT refunds.
Mboweni said that government remains committed to sustainable public finances, and despite major spending pressures, the expenditure ceiling remains intact.
Gross debt is projected to stabilise at 59.6% of GDP in 2023/24. Currency depreciation accounts for about 70% of the upward revision to gross loan debt in the current year.
The consolidated budget deficit is estimated at 4% in 2018/19, compared with the 2018 budget projection of 3.6% of GDP. After rising to 4.2%, the deficit stabilises at 4% in the outer year.
Treasury also expects the economy to grow 0.7% in 2018, compared with the 1.5% prediction made in February, which is considered to be one of the greater risks.
“Slow economic growth remains the primary risk to the framework. While some state-owned companies receive funding in the current year, their poor financial position could burden the public finances over the medium term,” he said.
“In recent months, deteriorating economic performance and revenue shortfalls have contributed to some slippage in fiscal projections. Other risks identified in the 2018 budget have materialised, including a public service wage agreement significantly above inflation, and continued decline in the financial condition of some state-owned companies, leading to requests for budget support.
“Following years of slow spending growth and tax increases, there is little room for large fiscal adjustments.”
Here are some of the key messages from the budget review:
We’re missing the tax target
Revenue collections in 2017/18 were R0.8 billion lower than estimated in the 2018 budget.
Revenue collection for the first six months of 2018/19 grew by 10.7% compared with the same period last year. However, the technical recession experienced in the first half of the year has begun to feed through to revenue collection, which has slowed, Treasury said.
Weaker economic growth, alongside a once-off payment of overdue VAT refunds, will result in the consolidated budget deficit expected to decline from 4.2% of GDP in 2019/20 to 4% in 2021/22.
Treasury now expects to collect R1.35 trillion rand in the 12 months through March 2019 – R27.4 billion less than was estimated in the February budget.
No big tax changes
Mboweni said that South Africa’s expenditure ceiling remains intact, allowing for real non-interest spending growth of 1.9% per year over the medium term.
As such no additional tax increases are being proposed at this time.
“The consolidated deficit, which includes national government, public entities and social security funds, is projected to narrow from 4.2% of GDP in 2019/20 to 4% of GDP in 2021/22,” he said.
More bailouts for state companies
State companies that are struggling to get their finances in order will received yet more aid from the government.
South African Airways (SAA) will get a R5 billion bailout, while SA Express will receive R1.2 billion and the South African Post Office will get R2.9 billion in new funding from the government.
The commissions of inquiry into tax administration and state capture meanwhile will receive a combined R409 million.
“SAA has a R19.1 billion government guarantee, R14.5 billion of which has been used. Debt of R14.2 billion is maturing in or before March 2019. In 2018/19, government is allocating R5 billion to help the airline repay this debt. In general, SAA is not generating sufficient cash to repay its total debt and will have to negotiate with lenders to refinance or extend maturity dates,” the minister said.
SARS will also receive R1.4 billion more over the next three years to help with efficiencies.
No money to pay state workers more
Mboweni said that the pay deal unions wrestled earlier this year will cost an extra R30.2 billion over the next three years, which has not been budgeted for.
The public-sector wage bill already accounts for 35% of government expenditure, with Mboweni adding that 30% would be the sweet spot.
The state employs over 1.3 million workers, who have seen an average annual increase in salaries of 11.2% – far outstripping inflation.
State departments have been ordered to find the money to pay for the increases within existing budgets.
More items to be zero rated for VAT
Earlier this year, a panel of experts was commissioned to investigate mitigating the effect of the VAT rate increase on low-income households.
The panel suggested that six items be considered for zero-rating, while pointing out that targeted expenditure would be more effective in helping low-income households.
In response, government proposes to zero-rate white bread flour, cake flour and sanitary pads from 1 April 2019.
You can read the full speech below:
FullMTBPS by BusinessTech on Scribd
Read: R3.52 of every R10 spent by government goes to public sector salaries
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