When Finance Minister Tito Mboweni presented his maiden budget in February, he brought a hardy aloe plant to Parliament and placed it on his lectern. The plant indicated that SA needed to ready itself for hard years ahead.
On Wednesday, when he presented his second medium-term budget in Cape Town, he gave an update: the aloe was not doing well. “It needs attention, like our public finances,” he said, according to his prepared remarks. “Our problem is that we spend more than we earn. It is as simple as that.”
The medium-term budget, delivered four months before the main budget in February, outlines government’s spending plans over the next three years, and includes projections for the rate of economic growth and the status of public finances. Ministers also use it as an indicator of what can be expected in the main Budget. It does not generally include announcements on new taxes, and none were announced on Wednesday.
The finance minister said on Wednesday that depressed economic growth, a projected tax shortfall of R53bn and multiple bailouts for state-owned enterprises had reduced room for the state to boost spending on its key priorities like education and health. The national debt now tops R3trn and may grow to R4.5trn by 2022/23 – or 71.3% of GDP. It is currently at 61% of GDP.
As projected by analysts, the finance minister confirmed that SA is facing another year of large tax revenue shortfalls. Persistent weak economic growth – which Treasury has downgraded to just 0.5% for the year – the low profitability of companies and weak household consumption mean that projected tax revenues grew by only 3.7% this year. Treasury was budgeting on growth of 10.4% to meet its budget commitments. The cost to service SA’s growing sovereign debt has now reached R204bn, said Mboweni. Debt servicing costs are growing at 13.7% per year and are the fastest-growing part of the budget.
Some of the other key issues:
Reducing the debt burden of struggling power utility Eskom is one of the biggest headaches facing the state. Debt has swelled to R450bn, dwarfing what is owned by other SOEs. The state has had to provide two lifelines this year: a R69bn bailout announced in February, and a separate R59bn lifeline spread out over two years included in a bill making its way through Parliament. Mboweni did not announce any additional funding above what was set out earlier in the year. “We cannot continue to throw money at Eskom,” he said.
Despite indications by Minister of Public Enterprises Pravin Gordhan on Tuesday that the finance minister would lay out how the state intends to reduce Eskom’s debt burden, Mboweni said that the power utility’s management has yet to show progress on reforms. Mboweni said that debt relief would only be granted once the board had shown an “irrevocable commitment to implement government decision[s]” and showed “progress”.
On Wednesday Mboweni said the airline was unlikely to “ever generate sufficient cash flow” and the state should rather direct its resources towards “ordinary workers” who use trains and not “the middle class and wealthy flying around the country”.
Over the past 13 years, South African Airways has incurred over R28bn in cumulative losses.
“The airline is insolvent and, in its current configuration, unlikely to ever generate sufficient cash flow to sustain its operations.”
He announced that the state would pay off its-government-guaranteed debt of R9.2bn “over the next three years” to honour its contractual obligation.
While the minister did not announce specific interventions, he said he has welcomed conversations between the flag carrier and potential equity partners.
Civil servants’ wage bill
In February Mboweni announced that government wanted to cut down the state’s wage bill – which at 35% of consolidated revenue is above the global average. On Wednesday he announced that initiatives outlined in the budget, such as early retirement without penalisation, a reduction of performance bonuses and freezing of salaries had not panned out as planned.
“Growth in the public service wage bill needs to decline to reduce the pressure on goods and services and infrastructure,” he said.
On Wednesday he said that on an inflation-adjusted basis, the number of civil servants earning more than R1m a year had doubled between 2006/7 and the current financial year.
New guidelines – which will apply to members of cabinet and provincial executives – included capping official cars at R700 000 VAT inclusive, restricting domestic travel to economy class tickets and a wage freeze with a “likelihood of an adjustment downwards”.
In a morning briefing with journalists he said government would have “robust discussions” its labour partners to decrease the bill, but added this would not mean job cuts.
E-tolls are here to stay
E-tolls have long been a problem, with low payments and broad dissatisfaction among some users. Mboweni said on Wednesday that while government had considered several options, it had decided to retain the “user pay principle” and again urged South Africans to pay for services.
The NPA and SARS
Mboweni announced that the National Prosecuting Authority would receive an additional R1.3bn in funding and the South African Revenue Service an additional R1bn for the next two years to help improve the “effectiveness of the state”.
“These funding shifts will bolster efforts to combat corruption and improve revenue collection,” he said.