A decade of budgetary whoppers

Is Tito trying to break the tradition of ministerial delusion?
'This is a serious position to be in,' said Tito Mboweni during his budget speech on Wednesday.

How do you know when a Finance Minister is lying? When he makes a prediction.

There is a fine tradition of Finance Ministers telling whoppers in their budget speeches. Granted, it’s never easy to make accurate predictions on anything fiscal, but the track record of our ministers in calling GDP growth rates is abysmal. They’ve over-stated GDP in eight out of the last 10 years, sometimes by inexcusably large margins.

Read the MTBPS here.

Given this track record, we should treat budget estimates as PR gibberish intended to mollify the restless limbs of the ruling coalition.

This is not a slight matter. The country’s tax receipts and borrowing requirements are tied to the accuracy of economic forecasts. Every time Treasury over-estimates economic growth, the shortfall has to be made up in borrowings, and you can see the result of that in the public debt-to-GDP table below.

Public debt to GDP

Virtually every year in the last decade, tax receipts were lower than expected. Just two months ago Mboweni released a growth plan for the country entitled ‘Towards an Economic Strategy for South Africa’ which aims to kick the economy into high gear and wrestle down unemployment.

There were some references to this plan in yesterday’s Medium-Term Budget Policy Statement (MTBPS), delivered to Parliament by Mboweni. The Integrated Resources Plan, outlining the country’s energy future, has been gazetted; Home Affairs has simplified the visa regime (but the implementation is way behind schedule, according to tourism experts); and plans are afoot to accelerate the licensing of the broadband spectrum.

Read: Tourism wins: Government to abolish unabridged birth certificate rules

These on their own will not shift the economic needle anywhere near what is needed to get the economy moving again.

Mboweni doused growth expectations for the current year, reducing the GDP forecast to a miserable 0.5% from the 1.5% forecast made in his budget speech in February. The budget deficit is expected to reach 5.9% of GDP in the current year, which takes us back to the levels last seen at the time of the 2009 financial crisis. He expects growth to reach 1.7% by 2022. In other words, we will remain trapped in a low-growth cycle for the foreseeable future.

Source: National Treasury, StatsSA, Trading Economics

Year               Forecast                Actual             Minister of Finance

2019                 1.5%                             0.5% (Est.)      Tito Mboweni

2018                 1.5%                             0.7%                 Malusi Gigaba

2017                 1.3%                             1.3%                 Pravin Gordhan

2016                 0.9%                             0.5%                Pravin Gordhan

2015                 2.0%                             1.5%                 Nhlanhla Nene

2014                 2.7%                             1.5%                 Pravin Gordhan

2013                 2.7%                             2.2%                 Pravin Gordhan

2012                 2.7%                             2.5%                 Pravin Gordhan

2011                 3.4%                             3.3%                 Pravin Gordhan

2010                 2.3%                             2.8%                 Pravin Gordhan

Perhaps there is some truth in the claim that Mboweni’s sobering assessment of our current economic malaise is intended to shock his ANC colleagues into more radical reform.

If so, this kind of truth-telling would be a welcome change of form.

Revisiting some of the fanciful predictions made by finance ministers over the last decade is sobering.

In his 2017 budget speech, then finance minister Pravin Gordhan declared: “Government debt will stabilise at about 48% of GDP over the next three years. The budget deficit for 2017/18 will be 3.1% of GDP.”  The actual figures for government debt in 2017 were 53% and the actual budget deficit for 2018 was 4.4%.

Budget deficit 2009-2018

In his 2016 budget speech, Gordhan said the budget deficit would be reduced to 2.4% by 2018/19. It actually came in at 4.4% in 2018.

In 2014, the budget deficit was projected to be 4%, but came in at 4.3%. In the same year GDP growth was projected at 2.7%, rising to 3.5% by 2016. The actual figures were 1.5% and 0.5%. It’s clear the longer the time horizons, the more divorced from reality are the projections.

In 2013 the budget deficit was expected to fall from 5.2% of GDP to 3.1% in 2015/16. The deficit came in at 4.1% in 2015 and 3.8% in 2016.

And so it goes on.

In 2012 the budget deficit was projected at 4.6% of GDP (not bad, it came in at 4.4%), with a plan to reduce it to 3% in 2014/15 (way off the mark, it came in at 4.1%).  That same year public debt was expected to stabilise at about 38% of GDP (this was way out: public debt to GDP was nearly 50% in 2015).

Back in 2011 Gordhan bemoaned the youth unemployment rate of 42% (for people between 18 and 29). Youth unemployment (ages 15-24) is today sitting at 55%.

Read: SA Q3 unemployment rate stays at 11-year high

Growth expectations for 2010 were 2.3%, rising to 3.6% by 2012. Actually, growth exceeded Gordhan’s 2010 forecast, but he was way off the mark with his 2012 forecast of 3.6% (the actual growth for 2012 was 2.5%).

The cumulative effect of these over-estimates is a rising debt burden which Mboweni believes will exceed 70% of GDP by 2022/3. “This is a serious position to be in,” said Mboweni. In fact, debt to GDP could hit 80% in the next 10 years. The status quo is not an option and everyone – parliamentarians included – would have to tighten their belts. The country may enter a debt trap, and ratings agencies are ready to pounce unless more radical action is taken. The public sector wage bill must come down.

Says Maarten Ackerman, chief economist at Citadel:  “The elephant in the room is quite obviously the public sector wage bill, which is currently the largest of all the OECD countries relative to GDP, accounting for 46% of all tax revenue in 2019/20 as a result of years of an increasing public sector headcount and above-inflation wage increases. Mboweni pointed out that adjusting for inflation, the average government wage has risen by a shocking 66% over the past 10 years – completely disproportionate to increases in the private sector, and without achieving a commensurate rise in productivity.”

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Lots of elephants in the room, don’t forget about the EWC, BEE, AA elephants!

The former president doubled our debt, before the current president leaves office, he will double our debt again. Our debt were 27% when JZ came to office, when CR leaves we will be at +100% to GDP, in a time frame of +-15 years. Slowing they guide us over the cliff, now we have started with the free fall. Welcome to the IMF long before CR leaves office. Good luck to old Jan, he was only 10 years in this country and hated every day he was here, but old Jan will be again the scapegoat.

The world economy is not really growing, South Africa can only grow if we can contribute to the world markets, and except for some resources and agricultural exports, we have nothing to offer to the world. Not even cheap labor like China, because our labor are mostly poor in skills. Proof of our poor skill levels are the foreigners which have taken most of the jobs away from our own people, without any understanding from our side how we lost most of the entry level business opportunities.
Good luck to any real permanent long term jobs to be created in South Africa by any politician from any political party.

So,Hatchmet, what you are saying in essence is that there is no hope! I am tending to agree, and perhaps the only hope we have left is if the breeding like rabbits stops!!

A country where employment is decided on skin colour will fail. Period.

You will find that the actuals are less than the stated actual. Also there is a direct correlation between the gaps and the amounts that the ANC stole each year.

End of comments.




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  CPIThe Consumer Price Index (CPI) measures monthly changes in prices for a range of consumer products Jan 2021 3.20%
  CPI ex OERThe Consumer Price Index excluding Owners’ Equivalent Rent (CPI ex OER) measures monthly changes in prices for a range of consumer products excluding Owners’ equivalent rent that measures changes in the cost of owner-occupied housing Jan 2021 3.40%
  RepoThe rate at which the Reserve Bank lends money to the country’s commercial banks and set by the Reserve Bank’s Monetary Policy Committee. Feb 2021 3.50%
  Prime lendingThe Prime Lending Rate is the rate of interest that commercial banks will charge their clients when issuing a loan (home loan or vehicle finance) Feb 2021 7.00%

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