Zero-based budgeting: SOEs in the firing line

Treasury has asked departments to identify entities which can be rationalised; seeks R230bn in spending adjustments.
SOE pressure to be reduced. Image:

State-owned entities (SOEs) will not be spared from government’s zero-based budgeting approach, which Finance Minister Tito Mboweni says will be piloted in the upcoming mid-term expenditure framework. 

Reigning in the costs of financially-distressed SOEs will be central to the government’s efforts to stabilise public finances and reverse spiralling debt. 

National Treasury said the revised budget deficit for 2020 is sitting at 15.7% in 2020 while the early projection for debt to GDP ratio is 81.8%

Under this backdrop, Treasury needs to find spending adjustments of about R230 billion over the next two years.

Read:
Supplementary Budget speech and Budget Review
SA’s finances as a household budget

Zero-based budgeting 

In the Supplementary Budget Review, Treasury says the Covid-19 pandemic stressed the need for urgent reforms in SOEs so they can become financially stable and sustainable. 

Using the principles of zero-based budgeting, government will only focus on necessary and performing expenditure as opposed to using the previous budget as a base. 

Departments would have to justify expenditure on their programmes from scratch, which Mboweni hopes will result in significant cuts on spending. 

SAA

Mboweni’s supplementary budget was also mum on allocating funding towards the restructuring of South African Airways (SAA), leaving the question of how the government is planning to fund the R10.3 billion needed for the new company’s take-off plan unanswered. 

In fact, the supplementary budget provides no new money for SOEs, barring a R3 billion allocation to recapitalise the Land Bank. 

Read:
No word on public sector wage bill in adjustment budget
Potential funders for SAA put their hands up

SAA has been in business rescue since December 2019. On Thursday the airline’s creditors are expected to convene to vote on the final rescue plan, whose complete funding has been placed squarely on government’s shoulders in the absence of any investors. 

Delivering the supplementary budget to Parliament on Wednesday, Mboweni said outside of the R16.4 billion that was allocated to SAA in the February budget for guaranteed debts and interest, any additional money “will follow the principle of zero-based budgeting approach”. 

In a media briefing following his budget speech, Mboweni would not be quizzed on SAA, referring all questions to the Department of Public Enterprises (DPE). 

He added that the rescue proposal published by business rescue practitioners Les Matuson and Siviwe Dongwana “will be put into the budget process and evaluated against our other priorities.”

The DPE has been lobbying labour and creditors to approve the proposed plan, saying it would be in the best interests of all stakeholders. The plan proposes a slimmer, restructured SAA where over 70% of the current workforce is retrenched and offered severance packages totalling R2 billion.

This will leave 1 000 employees during the period in which the airline only operates domestic routes.

In a letter sent to workers on Tuesday, signed by DPE Acting Director-General Kgathatso Tlhakudi, the department urged the unions to accept the severance package agreement in order to increase the chances of creditors voting in favour of the plan. 

Separately, the DPE also urged creditors to vote in favour of the plan saying this would be the most “expeditious option for the national carrier to restructure its affairs” while launching a more viable national carrier. 

Read: Government urges creditors to support SAA rescue plan

The plan has overcome its first hurdle, after a court application by creditor SA Airlink to interdict Thursday’s meeting failed on Wednesday morning. 

Eskom 

In what appeared to be a warning to Eskom, Mboweni said progress in the unbundling the electricity utility has been slow – this was not the expectation when the government allocated R23 billion a year over three years in the 2019 budget.

“The principle of zero-based budgeting is that we must see demonstrable value for money. Eskom will need to show progress in meeting the milestones as laid down in the Roadmap.

“This is non-negotiable,” said Mboweni.

In February, Treasury revealed that it has spent R162 billion on financially-distressed SOEs over the previous 12 years – of which Eskom accounted for 82%. 

Rationalisation

The reforms that government plans on instituting in SOEs will involve rationalisation, described as “reducing the number of and merging some state-owned companies, and incorporating certain functions into government.”

Further reforms will involve equity partnerships, and stronger policy certainty and implementation.

Treasury Director-General Dondo Mogajane said it’s embarking on fiscal reviews as a “stepping stone” towards the zero-based budget process. Different government departments have been asked to identify entities which should cease to exist because they are not needed and the ones that have to be merged with departments. 

“As we approach the MTBPs we will be more detailed on exactly which ones will be closed and which ones will be supported further and which ones will be merged with programmes in various departments,” said Mogajane.

Treasury says any transfers from the fiscus to SOEs will be strictly conditional on them improving their balance sheets.

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Oh deliver us a Thatcher Lord!

Too soon.

Will zero IQ’d government official embrace zero based budgeting which leaves zero rands to be made from corruption?

The only zeros here are the ones that will be attached the end of those rand notes when currency spirals after debt default.

This may help Tito.
1. Reduce public Sector by 50 %. This includes cabinet.
2. Scrap the 9 Provincial Governments.
3. Recover the R 450 Billion Eskom debt from those who stole it. Start with the last 10 CEO’s.
4. Privatise SAA, Denel, Post Office, Eskom, Water Board etc.
5. Prosecute those implicated in graft at the Zondo Commission.
6. Prosecute and jail Jacob Zuma.
7. Prosecute and jail Ace Magashule and David Mabuza.
8. Prosecute and jail Supra Mahumapelo.

How am I doing Tito ?

Houston we have a problem…
Currently spending twice as much as we generate, massive looting by comrades and we ain’t going to do anything about it…

South Africa had R3.7 Trillion in Debt, about R66,000 per citizen.
At R500,000 to generate a single job, SA would need another R5 Trillion to ensure the 10million unemployed have jobs.

Plan Of Action
SA that SA needs R10 Trillion Loan, pay off the R3.7 Trillion then cut goverment work force by 50% followed by privatisation of all SOE and then start the rebuilding of SA.

Fact about SA Debt

The national debt of South Africa is the money owed by the country’s federal government, which is based in Pretoria. The debts of South Africa’s states and local government are not counted as part of the country’s national debt.

Sitting at R3,639,817,900,900

You could wrap $1 bills around the Earth 878 times with the debt amount.

If you lay $1 bills on top of each other they would make a pile 24,626 km, or 15,302 miles high.

That’s equivalent to 0.06 trips to the Moon

https://commodity.com/debt-clock/southafrica/

Good analogy PurgeCoin.

(….hmmm….I would like Jacob Zuma to spell out that R3,6 err …number. It’s going to take him a long time.)

Looks like three thousand six-hundred and thirty eight trillion to me?

When government borrows R118bn from international institutions in hard currency then they better be disciplined at paying it back, othwise Ecuador or Argentina beckons.

I wonder if it was really advantageous for Tito to have spent a few hours presenting and then defending his budget speech. This was truly another ANC non event. The people in treasury must have had months of sleepless nights trying to wordsmith this speech and the outputs of the adjustment budget – nothing more and a ducking and diving exercise

Quite so, but the ducks are dead and the diving pond has dried up!

Having had 25 years practice, you’d think they would have got a bit better at this whole government thing? If I had 25 years to work on say, my tennis game I’d probably be pretty good now, thought that’s how it works? Malcolm Gladwell’s 10, 000 hours clearly doesn’t apply to these coprolites

Not so. They’ve done their 10 000 hours in looting, and incompetence, and they’re experts at both

The best the world has ever seen.

They will never get it right.they can’t

Major issues not addressed , make believe hocus pocus – the ANC luck is that the vast majority of their voters do not understand how they get shafted.

Close down the army,navy,airforce,denel,,saa,landbank.sell all the assests.

Do you know how many people can attend TRADE SCHOOL for R 10.3 BILLION??????????? lie S A A WITHER ON THE VINE HOW MANY TIMES ARE YOU GOING TO THROW GOOD MONEY AFTER BAD. You know this will be the legacy of the A.N.C.

Brilliant finance minister; SAA waits in line with other SOEs for any new money and the Land Bank – of far greater strategic importance – is the only one to get it’s promised and well-deserved new money.
Talking about national priorities, the taxi sector far outstrips a national airline measured against daily numbers and categories of people getting to their destinations! SAA doesn’t serve schools, universities, hospitals, etc. And taxis do get tourists to places like table mountain and other attractions

In light of the fact that Tito didn’t set aside R10,4bn new money needed for SAA next month – July 15 – and said the airline must join the mid-term budget process, the business rescue plan is unimplimentable. So are the banks then the ones to come running again with the R10,4bn?

I am sure not more of 10% getting R1m+pa sitting in parliament can explain what Tito said and what is a zero budget

The formal vote was postponed to 14 July. Had R10,4 bn been commited in yesterday’s emergency budget creditors may have adopted the plan.
What happens now?
1. Gordhan will cut services to try scrape together the R10,4bn, OR
2. The banks, smelling lucrative interest on loans, will give R10,4 unsecured bridging finance, OR
3. An investor, or BEE consortium, comes up with the money on condition that DPE has no more than a 49,9% shareholding (enough to still be able to exert pressure on government for bailouts or guarantees down the line)

Start by trimming the over stuffed Public Service staff compliment of 1 700 000!

PS Prosecute your thieving comrades, recover their loot and do get your thieving hands off public and taxpayers funds.

End of comments.

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