Mboweni says ‘rock the boat’, but there are no waves

Taxpayers must brace themselves for even more increases.
Which boat will be rocked for the tax increase of R10bn? Corporate tax is a no-go, personal taxpayers have been squeezed enough, and carbon tax is intended to be fiscally neutral … just sin taxes, then? Image: Dimas Ardian, Bloomberg

Rock the boat, said Finance Minister Tito Mboweni. Do the unusual, he said. Disrupt the comfort zones, he said. Get things moving.

But decisive interventions that would really make a difference remained absent throughout most of his highly-anticipated Medium-Term Budget Policy Statement (MTBPS) speech to parliament on Wednesday.

Instead it was more of the same. In terms of very serious issues such as the public sector wage bill, the staggering debt and the eye-watering inefficiencies at state-owned enterprises (SOEs), the can is set to continue to be kicked down the road.

Read: Cost of saving Eskom continues to rise

Revenue collections from tax in the 2019/2020 financial year are expected to come in at R53 billion less than expected in February, a shortfall of 4%. There is very little hope of drastic improvements over the medium term.

Read: R53bn-sized tax hole in 2019

Kyle Mandy, partner and head of national tax technical at PwC, says what is really sobering are the medium-term forecasts in terms of the deficit and the growth in debt to GDP.

The consolidated budget deficit is now projected at 5.9% of GDP in the current year. However, it averages 6.2% over the next three years, with debt projected to reach 71.3% of GDP by 2022/23.

This means debt of R4.5 trillion in the next three years.

Put into the pot economic growth that has been revised downwards from the 1.5% expected in February to 0.5% this year – even less than the International Monetary Fund is expecting – and this is a precarious position to be in.

Mboweni expects growth to slowly rise to 1.7% in 2022, supported by household consumption and private sector investments. However Mandy is not convinced by the projected economic growth for next year and the year thereafter.

Read: National Treasury downgrades 2019 growth forecast

“It is very difficult to see where that is going to come from. There has been a tendency over the last few years to over-forecast growth and then to revise it down every year.

“I will not be surprised if that continues. The credit rating agencies will also be looking at that and whether or not those forecasts are credible and in line with their forecasts.”

Moody’s, the only credit rating agency that has not downgraded our credit status to junk, is expected to review the country’s credit rating on Friday.

Read: The good and bad about the MTBPS that Moody’s will watch

Taxpayers who have been buckling under increased taxes over the past few years must brace themselves for even more increases. The tax increase of R10 billion – pencilled in during the February budget – is still coming. Where it will come from will be revealed in February next year.

“The major problem is there is no space to get this from taxes. Corporate income tax is a no-go, the personal income tax base has been squeezed as much as it can – and if there is more squeezing it may well do more harm,” says Mandy.

Personal income tax increases are becoming self-defeating.

Income from carbon tax, notwithstanding that the tax was always intended to be fiscally neutral, may fill some holes. Smokers and drinkers will cough up more and must expect above-inflationary increases.

However, the options are extremely limited, warns Mandy.

Mboweni is only tinkering around the edges, to show how government is committed to changing this very unsustainable position that we are currently in.

The big elephant in the room is the bloated government wage bill.

“The plans to address this are really just fluff,” says Mandy.

Mboweni suggests freezing the salaries of cabinet members, premiers and MECs, capping the cost of official cars at R700 000 (Vat inclusive nogal) and paying only for economy class travel tickets.

“The real issue is the public sector wage bill, which is kicked further down the road for debate and negotiations.”

Mboweni refers in his MTBPS to the fact that 29 000 public servants, MECs and members of parliament and provincial members earned more than R1 million last year.

The average wage increase across government was 6.8% in 2018/19, or 2.2% above inflation. Mboweni says government is looking forward to “robust discussions” in the relevant bargaining structures to achieve a sustainable (wage increase) arrangement.

The average government wage has risen by 66% in the last 10 years – while unemployment has risen to an 11-year high of 29%.

The same theme continues in terms of unaffordable expenditure plans – such as the National Health Insurance and the continued bailouts for SOEs.

Read: SAA unlikely to ‘ever’ be sustainable in current configuration

All that has come out of his mini-budget statement is that we can expect more “talk shops” but little action, says Mandy.

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What is this debt for? A R500 billion increase per year? Even Escom cannot slurp up this amount, except if government is hiding the truth?
Tax income must be increase at what % per year, just to service this debt? On what basis, if there is no real economic growth forecast? The interest alone on R500 billion will be an additional +R40 billion per year? How on earth?

The additional debt cleary is money borrowed off shore which will be siphoned off and find its way into the pockets of our light fingered government officials. The trough needs to be filled and the gravy train fuelled.

Hey Tito, as former governor of the Reserve Bank I really believed you were smart and above the behaviour of your comrades. Sadly I need to change my judgement call on you.

“Rock the boat, said Finance Minister Tito Mboweni. Do the unusual, he said. Disrupt the comfort zones, he said. Get things moving.”
How about the ANC doing this for once by standing up to the unions and making the tough decisions. Oh, and what comfort zones ? The only people in comfort zones at present are the grossly overpaid, redundant govt and SOE employees. Time for action ANC, not just empty words yet again.

Very good article! I thought carts were capped at R800K. But we will pay and we dare not Rock the way we would want too.

Mandy has got this spot on. No action of any meaning or consequence, and once more the taxpayer is the only low hanging fruit.

Zero structural reform and zero introspection.

South Africa pretty much has the world’s highest unemployment rate….why?

There is zero foreign investment in our mining sector and our local mined are investing heavily offshore…why?

Every country on this continent is growing at about 3% or more, we grow at zero, why?

Well, the answers are the policies of the ANC, and until they are corrected we will have more of the same plus crippling debt that will begin to crowd out everything worth doing.

Well done Amanda, you have summarized the situation well. Seen it all before at company level. First the travel,car ,expense accounts and magazines are cut, then when this doesn’t really work ,further measures come in like combing departments and retiring managers, then plants start closing down and the company contracts before being closed or bought out.
Prediction, wealth tax will increase,subsidies will be cut, tax breaks reduced ( eg medical aid) sin taxes increased , vat up 1%. The elephant in the room is Moody’s rating. If this goes against us. Then the IMF comes in and all bets are off. May you live in interesting times.

did he mention any budget expenditure on dealing with the drought and looming water crisis?……….no but his tjommies can by a car up to
R 700 000 …………29 000 government employees earning a salary of more than 1 million rand a year each!

They can’t run a bath without either, forgetting to put the plug in, or flooding the bathroom, what chance has the country’s financial well-being got!!!??

End of comments.



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