It’s safe to speculate that few people envy Finance Minister Tito Mboweni his job, and it is even safer to guess that no sane and honest person would like to take it on.
This much is clear from the figures in the medium-term budget that Mboweni tabled in parliament on Wednesday, as well as the intricate juggling act as he tries to keep everybody happy.
In short, the SA government is running out of money with revenue from taxes falling far short of the continuing increase in government expenditure.
Mboweni said in his budget speech that “we cannot allow our recent fiscal weakness and the pandemic to turn into a sovereign debt crisis”, saying that “today the government sets out active measures to avoid this risk”.
“We table a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control,” said Mboweni.
The major problem remains the global recession brought on by the Covid-19 pandemic and the uncertainty of economic recovery.
The finance minister reiterated that the SA economy is expected to contract by 7.8% this year and recover by only 3.3% next year, and took the time to mention that his fellow parliamentarians and citizens must realise that this 3.3% growth is off a very low base.
A short presentation included in the budget documents states that National Treasury expects the economy to grow by an average of 2.1% per annum over the three years covered by the medium-term budget.
The figures indicate that this paltry economic growth – if SA can actually achieve it – is not nearly good enough to raise enough taxes to fund the current trajectory of government expenditure.
Mboweni spelt it out clearly: “Madam Speaker, we must be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year. Countries that find themselves in default see sharp GDP contractions and currency depreciations.
“On current trends, more of our taxes are being transferred to bondholders, rather than to critical services for our people. An uncontrolled increase in borrowing costs would harm small businesses, ordinary South Africans, and the poor the most.”
The budget shows that Treasury has reduced its estimates of revenue from taxes significantly for each of the next three years compared to previous projections.
|Revised revenue projections|
|2020 budget||1 425.4||1 512.2||1 609.7|
|Revised estimates||1 112.6||1 279.5||1 392.2||1 503.2|
|Change since 2020 budget||-312.8||-232.7||-217.5|
Source: National Treasury
The tax take – government revenue is a misnomer indicating that government does something worthwhile to earn it – is expected to decrease by more than R300 billion in the current tax year compared to the forecast presented only a few months ago at the time of the tabling of the 2020 budget.
Similarly, revenues for the next two years are expected to be lower by more than R200 billion in each of the next two tax years, also in comparison with the 2020 estimates.
Treasury points out that while SA does not compare badly with other developing countries as far as debt levels are concerned, its debt-to-GDP ratio is increasing at the fastest rate – by far.
“Interest payments [are] absorbing a growing share of limited public resources, which increasingly crowds out spending on social and economic investment. Debt-service costs are now 4.8% of GDP, up from 3.3% in 2016/17,” according to Treasury’s report.
Treasury also warns of a deteriorating government balance sheet, including state-owned companies and municipalities that are struggling to pay salaries and other operational costs. “Options to stabilise the fiscus are becoming increasingly limited,” it says.
It is unclear how government plans to cut expenditure.
Mboweni made quick, vague reference to talks between government and government employees to discuss the growing wage bill, and praised President Cyril Ramaphosa’s economic recovery plan as a solution to our woes.
In essence, the plan promised thousands of new government jobs and public work projects to kick-start the economy.
“Over the past five years, public sector employee compensation grew by 7.2% a year on average – well above inflation. Over the next five years, it will need to grow much, much slower,” warned Mboweni.
How best to adapt
“The Minister for Public Service and Administration and the leadership of the public service unions are meeting to discuss how best we adapt to the reality that we must do more with less, and that we are all in this together,” he said, contrasting government departments with the private sector, which was forced to cut salaries and working hours due to the coronavirus pandemic.
Nevertheless, a table in the presentation accompanying the budget speech shows that government expenditure is budgeted to increase from R1.85 trillion last year to R2.04 trillion in 2020/2021, but then drop to R1.99 trillion in the next budget year.
Consolidated government fiscal framework
|Revenue||1 518.1||1 276.7||1 457.6||1 595.8||1 705.7|
|Expenditure||1 848.7||2 037.8||1 993.5||2 079.6||2 139.2|
|Total gross loan debt||3 261.3||3 974.1||4 551.8||5 071.3||5 536.2|
Source: National Treasury
While the table shows a decrease in the budget deficit over the next three years, gross loan debt is expected to increase from the current R3.9 trillion to R5.5 trillion by 2023/2024. Mboweni highlighted this in his budget speech.
It is noteworthy that for some reason the revenue projections in this table are around R200 billion higher every year than the revenue expectations mentioned by Mboweni in his speech, and the growth in government debt thus somewhat lower.
The budget had few surprises with regards to government expenditure by government function over the next three years. Education remains the top priority, followed by spending on social services.
Despite lower interest rates, also alluded to by the finance minister in his address to parliament, interest payments have increased.
Interest on government debt over the next three years will be higher than the amount government will spend on health services for citizens.
|Total spending 2020/21 to 2023/24|
|Learning and culture||1 217|
|Peace and security||638|
|General public services||213|
Source: National Treasury
The lasting impression of Mboweni’s budget is that SA is in financial trouble.
He warned that if estimates for total government debt are wrong, the risk is that it will be higher.
He diverted from his written speech to issue a warning about financial prudence: “There is no room for seepage.”