The budget in seven charts

They’re not pretty pictures.
Finance Minister Tito Mboweni. Failure to get SA’s debt under control could see the country being affected in severe and even peculiar ways. Image: GCIS

The unusualness of Finance Minister Tito Mboweni’s second budget of the year can be seen in him delivering his speech from a government briefing room in Pretoria, and not from a parliamentary chamber in Cape Town where he would be playing to the crowd.

This time there wasn’t just no crowd to play to, standing in front of a podium with white panelling at his back gave the impression he was speaking under duress from some undisclosed bunker.

Judging from the dire position of the country’s finances as a result of the global Covid-19 crisis, a bunker would almost be an ideal place to give his speech.

“The South African economy is now expected to contract by 7.2% in 2020,” he said. “This is the largest contraction in nearly 90 years.”

Source: National Treasury, Reserve Bank, Statistics SA

The outlook for the next three is not expected to get any better either: GDP is forecast not to breach 3% for this period.

Already, the economic slowdown can be seen in sharp falls in electricity usage – down 30% year-on-year in April – and business confidence near historic lows.

Sources: Eskom and IHS Global Insight

The weak economy has already knocked tax revenue, resulting in Treasury expecting to miss its tax target for this year by over R300 billion.

Source: National Treasury, Sars

The scale of the falloff in tax collection, as well as the rise in unemployment and wage cuts, can be seen in pay-as-you-earn (PAYE) tax revenue falling from R47 billion in March to about R37 billion in May.

There is a similar story with Vat, which fell from R38 billion in January to just under R24 billion in May.

The sharp decline in tax collection will see public debt as a percentage of GDP hit 81% for the 2020/21 period. If not actively managed, this debt could reach 97.2% in 2022/23.

Source: National Treasury

Not all of the R300 billion tax shortfall is a result of a reduction in collections.

“Part of this revision is because the measures announced earlier this year give taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion,” said Mboweni.

As bad as things are, Mboweni warned that they could actually get worse.

Like in February, he once again said that if SA does not get its debt under control, it is on the path to ending up having a sovereign debt crisis like pre-World War II Germany or more recently, Argentina and Greece.

Impact

“The wide gate opens to a path of bankruptcy. A sovereign debt crisis is when a country can no longer pay back the interest or principal on its borrowings. We are still some way from that. But if we do not act now, we will shortly get there.”

This could result in interest rates and inflation skyrocketing, see a drop in spending, and affect the country in severe and even peculiar ways.

“Argentina had its ships attached. Greek civil servants and pensioners had their salaries and pensions slashed.”

He cautioned in a media briefing after the speech that there is no easy way around the difficulties SA has to face and that not even the $7 billion (about R121.5 billion) loans from the likes of the International Monetary Fund (IMF) and the World Bank will solve its problems.

Firstly, it still hasn’t gotten the funding.

So far, the Brics-backed New Development Bank has provided a $1 billion loan. Getting the buy-in from the IMF has not been so easy. Mboweni says the negotiations for a $4.2 billion loan have been “protracted”, “tough” and “difficult”. While an agreement was reached in principle, the IMF’s executive board still needs to approve it.

He expects the World Bank and the African Development Bank to provide funding.

But even if it gets funding, this will not solve SA’s issues because they are loans, which ultimately means they have to be paid back.

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Now imagine how this will look if the global economy goes into recession.

Last chance saloon to get your assets and your dignity out of this mess.

Where would you suggest one should invest to get out of this mess? Aren’t the developed countries kicking the can down the road by printing money left right and center?

Easiest hedge is buying Gold in rands.

If recession brings another collapse in equity markets you’ll find refuge in USD at least.

It is very sad, that as a nation, we are blindly walking in the direction of the biggest catastrophe that can befall any country. Parents can warn their children about the crocodile when they go to fetch water. People know not to venture between an elephant and its calf, between a hippopotamus and the water, and to be scared of snakes and spiders. We even self-isolate to contain a virus. This is the visible world, and we have an abundance of experience to cope with these risks.

While we are very good at avoiding the common, everyday risks, we are exceptionally bad at avoiding risks that are very real, but not visible or easily understood. The constant threat of hyperinflation of the currency is such a situation. It has an extremely devastating effect on the economy, the nation, social cohesion and the psyche of individuals who are exposed to it.

Tito Mboweni is alluding to this risk, but how many of the ANC supporters understand his warning? The kind of people who vote for the ANC and the EFF, due to their cultural background, their mentality, mindset and world-view is a certain and proven recipe for hyperinflation.

This exposes the cardinal flaw of a democratic system. When a democratic dispensation bestows the power on individuals to turn their physical and economic environment into a manifestation of their mindset, then you better ensure that those voters are relatively intelligent and well-informed. If not, then democracy is like a loaded shotgun in the hands of a child.

Even the most caring people with well-intentioned advice will not be able to prevent disaster when a child plays with a loaded shotgun. We are all in the line of fire. Worst of all, the naive and ignorant leftists and socialists with their personal agendas keep on distributing loaded shotguns to everybody in the schoolyard.

Solution – get the trade unions and the NDZ crowd to negotiate with the IMF – for a dose of reality.

they not cleva enough.
IMF will not understand these fools and their freakanomics

How did America become great? Two words: YOU’RE FIRED!

Every great economy began on the back of privately owned small and micro-enterprises. They employed when they could to expand and they fired when times were tough. Ask Mr Bezos.

BEE and trade unions have killed the economy, along with an unproductive, bloated civil service, employed solely for their votes and links to F&F (Friends & Family) of the ANC.

It’s as simple as that.

Growing up I played a lot city builder games. SIM City was one of my favourite and now Cities Skyline is.

The games really gets going once the population starts to grow internally then citizens start demanding services like Schools and Hospitals followed by refuse remocal then Policing and Fire Fighting.

To get the economy going you build power stations followed by new industrial areas, business centres and residential communities, no power means no growth and your town disintegrates.

Then comes a time in point where everything slows down as internally you can only grow so much without outside connection and you then are quite stuffed when you did not save while the population was booming and businesses were growing, all of a sudden you need to attract frogein investment starting with your neighbours and if you did not treat them well their towns could not reciprocate investing.

Once you over come this then natural disasters start occurring all whilst the population booms, disease spread rapidly and that is with a decent Health Care System.

Over populated school struggle to produce next generation employable workforce, shanty houses start springing up where decent housing was followed by citizen demands either you drop the taxes or your fix up the mess.

The game comes to an abrupt ending once you try borrow outside of your means.

Maybe I should build a city called SA and YouTube the results.

They didn’t have airtime, so they couldn’t play Sims, that is why the game is bombing out. Its apartheid’s fault.

For the country to avert an economic disaster of epic proportions, we have to install a circuit breaker, or safety mechanism, between the mindset of the average voter and the economy. We need to insulate the economy from the mindset of the average voter. China understands this concept. Therefore, they are experiencing an economic miracle. China is not a democracy. They are a one-party state with a capitalist free-market economy. They have successfully insulated their economy from the mindset of their average voter.

We can turn our economy on a dime if we do the same. Privatisation of all spheres of government will provide efficient isolation. Then we need to move further and follow the example of all successful businesses. A company is a democracy insofar as the voter has skin in the game. The voter can determine policy according to the number of shares he owns. This is why companies are more efficient than government departments, even though the same individuals who work at a successful company, vote for the unsuccessful government.

We are standing at the precipice because we are sticking to the wrong electoral system. There will be no change to the economic outcome without a change to the electoral system.

End of comments.

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