Finance minister Tito Mboweni has tabled his medium-term budget policy statement before parliament on Wednesday (30 October) detailing government’s fiscal goals and projections for the economy, as well as the risks facing the country.
Mboweni stressed that the MTBPS is not a budget speech – which will be held in early 2020 – thus it does not contain spending plans or tax proposals.
The speech paints a grim picture for South Africa’s state of finances, with a growing budget deficit, even lower GDP growth and state companies in financial turmoil.
However, Mboweni said that government and National Treasury is committed to turning things around, with early interventions showing some positive results, and plans in place to take action where it is most needed.
“The winter has been long, but we must prepare for spring and reposition the Republic to grow and to thrive. We need to plant good seeds for our country, both now and for future generations,” he said.
The key highlights of the MTBPS are listed below:
South Africa’s budget shortfall has hit R52.5 billion
Compared with the 2019 Budget estimates, total revenue shortfall for 2019/20 will amount to R52.5 billion, reflecting a poor employment outlook, with job losses, lower wage settlements and smaller bonuses, reducing personal income tax collection.
There was also reduced profitability in a difficult trading environment, resulting in lower-than-expected corporate income tax collections; weak household consumption, which moderates the increase in domestic VAT collection, and large downward revisions to tax revenue over the medium term
Economic growth has slowed down
Economic growth is now projected at 0.5% for 2019, as long-term growth estimates have fallen. As a result, revenue projections have been sharply reduced.
“Spending pressures continue to mount, led by the public service wage bill and state-owned companies in crisis. The 2019 MTBPS proposes an approach over the medium term that, effectively implemented, will restore the momentum of economic growth and stabilise the public finances,” the minister said.
The current account deficit is expected to remain at 3.5% of GDP over the next three years, reflecting low import growth due to weaker domestic demand.
Nearly half of all projected spending is going to social grants, education and healthcare
Over the next three years, consolidated spending will total R6.3 trillion, with 48% of this amount going towards social grants, education and health.
Revenue shortfalls and rising spending pressures are threatening government’s ability to maintain existing levels of service provision and infrastructure investment.
Budget deficit is increasing
The consolidated budget deficit averages 6.2 per cent of GDP over the next three years. Debt and debt-service costs will continue to increase, with the debt-to-GDP ratio now estimated at 71.3 per cent in 2022/23.
The deficit is expected to widen substantially over the next three years relative to 2019 Budget estimates. Debt and debt-service costs will continue to increase.
Government is cutting spending – but it’s not enough
Government has clawed back some of the revenue shortfall through reductions to departmental baselines and slower spending growth in 2022/23. Alone, these reductions are insufficient.
“Additional measures, particularly on the wage bill, will be required to stabilise the debt outlook and improve the composition of spending. Tax measures are also being considered,” Mboweni said.
Early plans for recovery are showing promise
In August 2019, the paper released by the National Treasury outlined short- and medium-term reforms that can boost economic growth, many of which do not require significant state resources.
Interventions to improve the quality of infrastructure planning are beginning to show some results, National Treasury said. Further measures to reduce wasteful expenditure, including by limiting claims against the state, will be implemented in the coming year.
National Treasury is on board to help Eskom – but it comes with terms and conditions
Government is providing medium-term support to Eskom to secure energy supply and to honour the state’s contractual obligations.
“The National Treasury, in partnership with the Department of Public Enterprises, is instituting a series of measures to bring discipline to the utility’s finances, and to step up the timeline for restructuring. Debt relief will only be considered once operational efficiencies have been achieved,” it said.
“Government has announced a comprehensive set of structural reforms for Eskom and the energy sector, which we are supporting with R230 billion over the next 10 years. Very difficult budget adjustments have been made,” Mboweni said.
“We cannot continue to throw money at Eskom.”
For the sizeable support required, it cannot be business as usual, the minister said, adding that Eskom must run its current plant and equipment better, achieve other operational efficiencies, including much better cash management, and fast-track the separation of the utility into three parts.
E-tolls are here to stay
Mboweni said that cabinet has considered several options to resolve the impasse over the Gauteng Freeway Improvement Project, but maintained that the user-pays principle is being carried forward.
“The reconfigured approach to Gauteng Freeway Improvement Project and its financing will be determined by the Ministers of Finance and Transport after consultation with the Premier of Gauteng and his Executive council.
“We need to build a culture of payment, as government services can only be sustainable if all of us that can pay for services, do so,” Mboweni said.
No new information about the NHI
The minister said that Treasury and the health department are still in discussions around National Health Insurance, and that parliament is still considering the NHI Bill.
The rollout of the NHI will require an addition R33 billion annually from the 2025/26 financial year, Treasury said.
This would be in addition to the previous estimations contained in the Green and White Papers of 2011 and 2017 respectively, of R74 billion a year.