Mboweni’s emergency budget will be tough

Spending demands are on the rise while income is sharply declining.
Finance Minister Tito Mboweni. Revenue is expected to decline by some R285bn in 2020. Image: Waldo Swiegers/Bloomberg

Finance Minister Tito Mboweni will deliver the emergency budget on Wednesday and what is clear is the need for great sacrifices as the country faces a significant revenue shortfall.

Mboweni himself has said on two separate occasions in parliament that the country no longer has the resources it did in the past and the government therefore needs to adjust its spending expectations. 

Watch the speech here tomorrow, live

A snippet of this “poorer” position was revealed in a Facebook post on Friday in which Mboweni shared several slides from a presentation made at the National Economic Development and Labour Council (Nedlac). 

We were at NEDLAC yesterday, June 19, 2020, for a conversation with social partners on the upcoming Supplementary…

Posted by Tito Mboweni on Friday, 19 June 2020

The presentation showed that the budget deficit would widen to 14%, double the figure forecast in February. Mboweni also outlined a marked increase in the government’s gross debt-to-GDP ratio, putting it at just under 80% in 2020/2021 from an initial estimate of 65.6% and shooting past the 100% mark from 2025.

Read: South Africa sees government debt at 113.8% of GDP in 2029

Snip, snip …

Lullu Krugel chief economist at PwC said the country was in for a “shock” on Wednesday with regard to the deficit and debt trajectory because of the significant drop in tax revenue and the increased state expenditure that will arise. 

Mboweni will need to give detail to some aspects of President Cyril Ramaphosa’s R500 billion economic support package announced in April, specifically where and how he will reprioritise R130 billion from previous allocations. Treasury is also expected to reveal whether or not it will fund the restructuring of South African Airways ahead of the airline’s creditors meeting on Thursday. 

We should expect anything that was not productive in the past to be cut,” said Krugel. 

“We will have to see some movement of expenditure into areas that can create growth because that is the only way where, over the long run, we can move to a sustainable fiscal position. Otherwise, we are just going to see debt run away completely,” she added.

Read: SAA rescue plan faces pushback from competitor and labour

Lumkile Mondi, a senior lecturer at the School of Economics and Business Science at Wits University, said the country was likely to see an austerity budget which requires a substantial structural reform programme addressing blockages in the information and communications technology, transport and energy sectors. 

I think Treasury is determined to ensure that SA does not find itself carrying a begging bowl to the International Monetary Fund (IMF) and World Bank because it cannot service its piling debt,” he said.

But Mondi warned that Treasury could only put those reforms on the table and the implementation remains with the various cabinet ministers.  Given the history of a lack of political will to enact reforms Mondi said the emergency budget is likely to be another “talk shop”.

We know nothing is going to be done by these ministers because there is no hegemony on the economic programme to take SA out of this crisis of high unemployment, poverty and inequality.”

Sources of funding

Krugel said measures on how to stabilise and grow the tax base will be critical as this will be the main driver behind the deficit and overall debt. 

As it stands tax revenue is expected to drop by just under R300 billion this year.  

Treasury has already begun plugging that hole with borrowings. On Friday it announced that the New Development Bank approved a $1 billion (R17.3 billion) emergency assistance programme loan for health and socioeconomic needs. An application has also been made to the IMF to draw $4.2 billion (R72.8 billion) to fund the government’s Covid-19 response. 

Krugel said an announcement on tax increases to narrow the gap was unlikely and government may instead announce an extension on the various tax breaks announced in the phased response to stabilise the economy. 

An increase in taxes would be unwise particularly now when households and firms were experiencing their own financial crunch. Krugel said the country also wanted to attract foreign investors and an increase in taxes, which are already relatively high, would have the opposite effect. 

Wage bill

Another burning issue that has reached no resolution since it was first announced in February is the move by the government to renege on implementing the final year of the three-year public sector wage agreement entered into in 2018. 

The public sector wage bill accounts for around one-third of government spending and in an effort to carve out savings Mboweni announced plans to reduce the bill by R160 billion over the next three years, starting with the R37.8 billion meant for increases in April. 

Reuben Maleka, assistant general manager for the Public Servants Association (PSA) said the union expected Mboweni to ensure that the supplementary budget caters for public service increases. 

The PSA is part of a number of public sector unions which have lodged an application with the Labour Court to order the government to enforce the contractual agreements which they say are legally binding. Maleka said the unions would not relent. 

“Minister Mboweni has only one opportunity to make sure that he caters for our resolution to be paid come Wednesday,” he said. 

Matthew Parks, trade union federation Cosatu’s parliamentary coordinator, said it would “collapse” collective bargaining if the government did did not honour the agreement and it is “unconscionable for the government to simply pass the buck for its mismanagement of the budget onto workers”. 

“Government has been talking since lockdown about the critical role that nurses, doctors, teachers, police and prison officers play, yet they now basically want to pickpocket them by denying them a simple increase to protect their wages from inflation,” said Parks. 

Mondi said Mboweni would not be able to deliver on his earlier announcement to cut public sector wages saying this would require the full backing of the ruling party’s Tripartite Alliance.

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There are really only 3 options:
1. Deflate the ZAR-let it run to 22-25 to the USD-demand driven inflation is probably close to zero anyway.
2. Be consistent with the continents values-go to the IMF and do as you are told by them-could unseat the Luthuli House clique though.
3. Try giggle spending-cost too high with social unrest, appeasement of some parties, probably inadequate given the depth of the economic failure etc.

All three options mean a lower standard of living and more social unrest in our unhappy, divided and failed country.

This is when drastic measures need to be taken, like give Mboweni super-ministerial powers to be able to deliver on his earlier announcement to cut public sector wages without the need to consult the un-Holy alliance.

I don’t like where this is going.

Mboweni’s swansong.

Its tough with a communist corrupt government. Taxpayer just gonna cough up more.

“Now is the winter of our discontent”.

It should surely be obvious even to this government that the only way to balance the budget is to cut expenditure. Further tax increases will only serve to reduce income.

Ho hum, how do you budget, let alone zero budget with a bunch that have no clue as to how to save or cut but are the world champions at spending.

History has shown us that when ever a minister even thinks of cutbacks, they go on a spending spree. Last one was vehicles for some department, all spent way over their allocations literally the day after the announcement.

When Tito finishes on Wednesday all he has to do is pick up the box with his pencil and his cookbook on the way out…….

I regard this as largely a self-inflicted emergency.

I will refrain from saying to the politicians we told you so, since you never listen anyway.

And to SARS, my sincere condolences, you will be looking for money in the months to come, but you will not find it.

Stop kicking the can down the road. This is what must happen:

1. Immediately move us to level 0 of lockdown, meaning we go back to where we were in February. No regulations whatsoever. People who fear getting sick can stay at home and self isolate
2. Introduce a sliding scale on companies tax, similar to the individual tax brackets, from a 28% minimum rate, to say 40%, depending on the profit of the company
3. Introduce a further wealth tax on individuals of say 50% on all income over R2m. The wealthy take the pain
4. Increase VAT to 17% or 18% or 20%
5. Reintroduce prescribed assets of pension funds to the tune of R500 billion, to settle Eskom debt. Private individuals take the pain. This is a relatively small percentage of our pension pot
6. Cut the Eskom staff by 40%
7. Borrow the further amount we need to plug the revenue gap from the IMF at a very low interest rate
8. Cut the public sector wage bill by 40% and all other expenses the IMF tells us to cut
9. Dissolve all unions
10. Borrow an additional amount in order to fund the NPA, judiciary, state prosecutors and defence attorneys to such an extent that all cases of state capture can be investigated, trialled and sentenced in an expedited manner. Build an additional prison to house the perpetrators if need be. Get back as much of the stolen money as possible (this will not be much but it will help)

In this way everyone takes pain

“We” (govt leadership) imposed the economic lockdown upon ourselves! Who else created this “emergency”?!

(One of humanity’s biggest economic mistakes in a long time)

Oh, how can we forget? “WE ARE SAVING LIVES”

2,000 C-19 deaths thus far (most who have comorbidities) out of a 57million population = 0,0035% (or a factor of 0,000035)

Compared that to what % are livelihoods being stuffed up? I doubt if the recent rise in the unemployment rates was just 0,0035%? Multiples of that!

While there’s talk in SA that the Covid-19 curve is going to “peak” soon. Nevertheless, the economic aftershocks of lockdown will be felt for years.

Oh well…..”Govt, here’s our pensions for your emergency budget. Hope it would help….”

Tito is a a very tough situation. If he is not given any real power to control the budget, he might as well toe the ANC line until he retires. If he is given real power, and implements the changes that he wants to, it will upset the “old guard,” which would not do.

No, sorry but it ain’t that easy to turn the ship around.
The real problem or solution is not as simple as freezing wage increases to government employees or cuts to the budget, or increasing national borrowings or trying to resolve the crisis with taxation increases, etc.
Such interim actions are all only a symptomatic plaster on a rotten open bleeding wound. It solves nothing.
S.A’s problem is much more complicated and deeply rooted. It’s a systemic
and progressing cancer for which plasters won’t do anything. The time is as ripe as it ever may be for a deep cut operation – to do the honourable and brave thing and declare national bankruptcy and request IMF distress management and control.
If we do not address the governance system, crisis management will repeat itself over and over again. We need a total system overall – something similar to the advanced democratic and decentralised governance system of Switzerland or we will forever be a third world struggling country.

End of comments.

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