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