Those South Africans hoping for some relief from Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement (MTBPS) speech will be disappointed.
It’s clear that fixing the organs of state came ahead of providing fiscal respite for citizens who were waiting for a leg up, as the weak economy continued to take a bite out of their wallets.
These priorities could be seen in the South African Revenue Service (Sars) and the National Prosecuting Authority (NPA) having their budgets boosted by R1 billion and R1.3 billion respectively, while the government remains committed to enforcing Gauteng’s e-tolls, despite lobbying against them from inside the ruling ANC.
Mboweni pointed out that the MTBPS, or the ‘mini budget’ as it’s also known, is not when tax relief announcements are made. “The policy statement does not include detailed spending plans or tax proposals,” he said. “That is for the annual budget, which is normally introduced in February.”
A key priority in fixing the state lies in making sure government has enough revenue to fund itself. This means ensuring that Sars has sufficient resources to not only carry out its mandate, but also to ensure that the tax collection agency regains its credibility.
Mboweni said Sars is turning the corner under the leadership of Commissioner Edward Kieswetter, as it had already “taken steps to reinvigorate and re-establish the Large Business Centre, and the litigation, integrity and compliance units”.
Even so, the sluggish economy and the problems at Sars means it expects to collect R53 billion less than expected in the 2019/2020 financial year – missing its target by about 4%.
This shortfall in revenue, compounded by government’s already dismal financial projections, is expected to drive the budget deficit to 5.9% of GDP.
Mboweni did not mince his words about what is wrong.
“Our problem is that we spend more than we earn. It is as simple as that.”
He has a plan to fix it, which basically comes down to getting spending and earnings to match by the 2022/23 financial year. This means government has to cut R21 billion from the budget in 2020/21, and R29 billion in 2021/22.
Mboweni is eyeing the state’s bloated wage bill to make these cuts.
“We set out a detailed analysis of spending on public sector wages,” he said. “It shows that 29 000 public servants, plus members of the national executive, members of parliament, members of provincial executives, and so forth, each earned more than R1 million last year.”
He pointed out that this is double the number of civil servants who earned more than R1 million in 2006/07. The rise in their wages outstripped inflation, with the average government wage rising 66% in the last ten years.
The plan is to reduce the headcount through early retirement and wage freezes. So far, it has not gone well; only 4 000 people have applied for early retirement.
Mboweni warned that SA has no choice but to swallow a bitter fiscal pill.
“The consequences of not acting now would be grave for South Africa. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap.”
Those working directly for government are not the only ones who should be pinning back the growing wage bill. Mboweni said state-owned companies, public entities and the private sector should also look at ways to reduce board and executive management compensation and benefits.
Breaking away from his prepared speech, Mboweni even called on boards to not pay bonuses to managers who underperform and also to fire them.
He noted that President Cyril Ramaphosa and the cabinet are doing their bit by approving guidelines to cap spending.
The president has agreed to guidelines that will apply to cabinet members and members of provincial executives:
- For the foreseeable future, cabinet, premiers and MECs’ salaries will be frozen at current levels, with the likelihood of an adjustment downwards
- The cost of official cars will be capped at R700 000 (including Vat)
- A new cellphone dispensation will cap the amount claimable from the state
- All domestic travel will be on economy class tickets
- There will no longer be payment for subsistence and travel for both domestic and international trips.
Aside from cutting the wage bill, there was the now-standard commitment to bring state-owned enterprises to order, with no specifics on how this will be done.
The one detail that did emerge is that South African Airways (SAA) will only be getting loans, rather than government grants, to fund its operations. SAA is currently in talks to bring in potential equity partners.
Although the economic outlook remains bleak, Mboweni pointed out that there are signs of some green shoots. Despite economic growth being flat for the year, growth in gross fixed capital formation rebounded to 6.1% in the second quarter.
“Mining grew by 14.4%. In real terms, credit growth has been positive since late 2018. Private sector credit extension rose 6.2% in September. Home loans grew 5% year on year – the fastest rate in some time.”
Despite these positive signs, SA still has a long road ahead.
“In short, it is a mixed picture with some positive signs.”