Geordin Hill-Lewis, DA Shadow Minister of Finance said that Mboweni has raised the white flag on debt stabilisation.
Finance Minister Tito Mboweni is right to identify economic growth as the only antidote to South Africa’s financial crisis. Growth brings more revenue to pay for more basic services, and growth helps bring down debt over time.
He confounded expectations of further tax increases and in fact gave some small income tax relief. This is welcome news, especially for working families who have been struggling to make ends meet with successive tax increases in recent years. More money in citizens’ pockets means that they can spend more, or save more, and both of these are good for growth.
He also indicated an intention to reduce corporate tax rates over time. This too is a positive, pro-growth announcement.
However, the Minister’s primary job remains to rein in our ballooning national debt. He did not do this.
In fact, Treasury admitted defeat, conceding that government will not meet its deficit target, and debt will not stabilise over the medium term. Indeed, far from stabilise, debt will grow to 71.6% of GDP, or R4.4 trillion, by the end of 2022. Minister Mboweni has often committed himself to stabilising debt. Now he has raised the white flag of surrender.
This means we will spend R229 billion this year alone on paying interest on our national debt. That is the same as we will spend on healthcare (R229 billion), more than we will spend on social grants for the poor and elderly (R221 billion) and more than double what we will spend on policing (R106 billion). This shows that unless we get debt under control, we will continue to spend more on interest, and have less and less for basic services.
This ever-mounting debt underscores the need for the DA’s proposed Fiscal Responsibility Bill, which which would introduce a new legislative fiscal rule to stabilise debt, by preventing the government borrowing more each year without the permission of Parliament. We will be tabling this Bill in Parliament and call on all parties to support it.
The deep cuts to public services now being proposed are a direct result of too much debt. Debt must come down, so that social spending can go up.
The Minister did announce a R160.1 billion cut to the public wage bill. This is welcome movement in the right direction. But his tough talk lacks credibility, because the government has only just begun negotiations with unions. So while the Minister has already budgeted for the full cut, there is no guarantee whatsoever that this cut will actually materialise.
Even with this cut pencilled in, debt is still growing. That means that if the full wage reduction is not achieved, debt will be even worse than now projected.
The Minister talks tough on zombie SOEs. But far from ending support for zombie SOEs, he announced another huge R16 billion bailout for SAA. This too is a white flag of surrender. Treasury has still not imposed any conditions on Eskom for the bailouts they continue to receive.
While the basic services on which the public rely are being cut, more money is being spent on failing SOEs. This is an indefensible choice.
The DA has also proposed an Emergency Solar Rebate to incentivise households to install solar power, easing the load shedding crisis and helping businesses stay open. We are disappointed an incentive scheme like this was not included in the Budget.
In summary, the longer that we allow debt to spiral out of control, the more cuts we will have to endure in future years. It would be wiser and more prudent to take the tough action necessary to stabilise debt now. Unfortunately Minister Mboweni did not do this, instead raising the white flag of surrender.
Paul Makube, Senior Agricultural Economist at FNB Agriculture said
Given the extremely difficult economic climate in which this budget speech was delivered, the immediate feeling is fairly positive. The fact that the minister focused on wasteful expenditure and cost savings from a government perspective shows the government’s intent, but implementation will be key.
From an agricultural viewpoint the fact that R500 million has been provisionally set aside for disaster management, including floods and the ongoing drought, is very positive, although the implementation will be the proof in the pudding. This includes the allocation of almost the same amount to support compliance with biosecurity and support exports. The recent foot and mouth disease outbreak proves the necessity for this allocation.
It is also promising that government has also allocated funds for land restitution. The R500 million to be set aside for restitution could result in more land claims being resolved over the medium term.
The increase in the fuel levy was expected, but given the current over recovery in diesel prices, the impact will be limited. The over recovery is a result of lower oil prices on the back off the coronavirus and the exchange rate. The latter has already reacted positively on the budget speech.
The move to allow third party access into the rail network is also positive as it may help expedite agriculture exports that currently face bottlenecks and higher costs from trucking due to weak road infrastructure in some provinces.
In a weak economic environment and disposable incomes under pressure, the tax relieve for hard-working tax payers is most welcome and will help consumption growth (tax payers who earn on average R265 000 a year, will see their income tax reduced by over R1 500 a year).
Kenneth Matlhole, FNB Business Spokesperson said:
The decision by Finance Minister Tito Mboweni not to increase VAT is positive for small businesses, as this would have significantly impacted on cash flow and input costs leaving businesses with no choice but to pass on the costs to consumers. Furthermore the tax review, in the near future, for Businesses will be a positive contribution in driving economic activity.
Looking at the R6.5 billion allocated for small business incentive programmes of which R2.2 billion will be transferred to the Small Enterprise Development Agency, this will create vast opportunities for SMEs in light of the tough economic conditions.
Conversely, small businesses who are highly dependent on the transportation of goods by road will be financially impacted by the fuel levy increase to 25 cents per litre.
Alf Lees, DA Member of the Standing Committee on Public Accounts said; “R16.4 billion spent on SAA vanity project is madness”
The whole business rescue of SAA was clearly a farce on the part of the ANC in an effort to prevent liquidation and keep control of SAA.
Over the past week Pravin Gordhan, Minister of Public Enterprises has made it clear to both the SCOPA and the PC of Public Enterprises that he remains in control of SAA despite the implementation of the so-called “business rescue” of SAA.
Nothing has really changed and SAA will continue to be a massive drain on state revenue.
The extent of the SAA farce is born out by the massive bailout of R 16.4 billion for SAA announced by Tito Mboweni, the Minister of Finance, in his budget speech today.
It is outrageous that funds desperately needed to stimulate the economy and the creation of jobs is to poured into the SAA vanity project.
This, whilst the child grant is to go up by a measly R 20 to R445 per month – an amount well below the amount required to provide a healthy diet for a child, let alone for the basics of clothing and other necessities.
The ANC and its trade union alliance partners should hang their heads in shame for wasting money on the SAA vanity project.
Dr. Leon Schreiber, DA Shadow Minister for Public Service and Administration said; “Mboweni embraces DA proposal to cut the public wage bill; now is time for action
The Democratic Alliance (DA) welcomes today’s announcement from finance minister Tito Mboweni that he supports the DA’s proposal to stave off a debt crisis by cutting the public wage bill by over R160 billion.
The DA has long argued that salary freezes for millionaire managers and reducing the number of managers in the public service by a third while protecting inflation-linked increases for frontline service delivery heroes like teachers and nurses, is the only way to prevent fiscal implosion.
Taken together, the DA’s measures will save R168 billion without raising any new taxes on overburdened South Africans. It is the only way out of this crisis.
We are however deeply concerned that Mboweni made this announcement even though the government has not even started the actual work of renegotiating wages. While we welcome Mboweni’s support for our proposal, they are currently just empty words. This government is already facing a huge credibility gap as a result of its failure to implement its past promises. Mboweni’s agreement with the DA today that we need to urgently cut the wage bill is, thus far, just the latest in a long line of promises devoid of any concrete action.
We have already seen that both Cosatu and Nehawu have rejected Mboweni’s embrace of the DA’s proposal, viewing the proposed wage cuts as a “declaration of war.” While we reject the unions’ response with contempt, Mboweni’s unilateral announcement of his support for the DA plan in the absence of any preparatory groundwork does severely undermine the credibility of his undertaking.
We will soon find out whether more words devoid of action will be enough to stave off the final downgrading of South Africa’s credit rating to junk by Moody’s Investor Services.
Following Mboweni’s embrace of the DA proposal, President Cyril Ramaphosa can now no longer delay one of the central choices that will define his presidency. If he chooses South Africa, he will implement Mboweni’s planned wage bill cuts even at the cost of splitting his own governing alliance. But if he again chooses his party over the country by buckling under pressure from the unions, he will condemn our country to fiscal doom.
While the DA has serious concerns over the complete lack of action to date, we welcome minister Mboweni’s embrace of our position and will support any effort to stare down the unions and protect our country from fiscal implosion. We will also be holding Public Service and Administration Minister Senzo Mchunu’s feet to the fire to immediately take action. Mchunu must now immediately implement the R37.8 billion cut announced by Minister Mboweni for the upcoming financial year.
Dr Heinrich Volmink, OUTA Executive Director for Policy asked; “Will Budget 2020 save us from a downgrade?”
Volminck said that the ambitious Budget is an ambitious one aiming to grow the economy, but will it be enough?
The 2020 Budget delivered some welcome news with income tax relief and the feared VAT increase not materialising. Success now depends on implementing the difficult cuts.
The Budget aims to promote desperately needed economic growth. This is seen in an easing of personal income tax, a plan to reduce company tax and no hike in VAT. The realisation of the need to cut the burgeoning state salary bill by R160bn over the next three years is hard for the public service employees but may help the strained fiscus. This is not a done deal and may mean a difficult battle between government and unions.
The independence of the Reserve Bank has been affirmed and improvements to the ease of doing business again promised. These efforts may bring much-needed investor confidence. However, the promise of easing the ability to do business has repeated over many years and yet we continue to slip down the world rankings. All of these measures are not only pro-growth, but may help stave off a ratings downgrade.
We are pleased that Minister Mboweni has recognised the concern that our growth forecasts are significantly lower than our global peers and well below the global economic growth average. However, the growing deficit – now at 6.8% of GDP – and the reduction in the number of taxpayers from 7.6 million last year to 7.2m will impact negatively on public services.
The emphasis on policy certainty, transparency and reducing borrowing costs is welcome. This requires a more rigorous approach to reducing waste and corruption – including cutting wasteful subsistence and travel allowances for senior public officials – rather than looking to increase revenue by hiking personal and corporate taxes. This is in line with OUTA’s recommendations to Parliament for a number of years.
The allocation of an additional R2.4bn to the NPA, SIU and the Hawks is a significant contribution to the fight against corruption, particularly when mentioned in the context of clearing cases arising from the State Capture Commission. More resources here should substantially increase the capacity of these criminal justice agencies and we hope successes here will ultimately improve the revenue collections and cut corrupt spending. Over and above accountability in government, the enabling private sector players must also be held to account. SARS has a strong role to play in this.
Along with capping the wage bill, programme spending will be cut by about R100bn, with R60bn of these savings going to fund Eskom and SAA bailouts. This is the cost of the collapse and looting of those SOEs. We need clarity on exactly how extra allocations will improve the situation, since repeated bailouts and government guarantees have not yielded tangible results. We welcome the Minister’s promise to merge and consolidate SOEs – we would like details and timelines – and the promise of a new law to stop excessive salaries in SOEs.
The victims of the SOE financial collapses are the poor and vulnerable. Human Settlements loses funding. Public transport is cut. Funds for school buildings and health services are diminished. These cuts underline the urgent need to identify and cut the waste, so funds can be directed to education, health and safety in line with the National Development Plan.
We are still waiting for the Cabinet’s decision on the future of e-tolls, but the Budget indicates an acknowledgement that motorists aren’t going to pay. Budget Review 2020 notes the need for clarity on the e-tolls and says that “[d]eclining e-toll revenue will have to be offset by other measures to repay South African National Roads Agency Limited debt”. For the past few years, Treasury has allocated R1.8bn to R1.9bn to the GFIP tariff shortfalls, which is equal to the GFIP bond repayment value. In effect, the government has come around to OUTA’s position on funding the GFIP from Treasury and its appetite to enforce e-tolls is waning, suggesting a final decision to pull the plug is not far off. The question is why this is delayed.
OUTA believes that civil society organisations, that act on behalf of citizens, should continue to make meaningful contributions to the crucial budget process. In line with this, we will make a detailed submission to Parliament on our views of Budget 2020 during the public participation phase.
Latest posts by Alan Straton (see all)
- Murder suspects arrested in Walmer - 5 April 2020
- Lockdown sees a decrease in serious and violent crimes - 5 April 2020
- Willowvale police investigate murder case - 5 April 2020
- Anti-Gang Unit arrest attempted murder suspect in Bethelsdorp - 5 April 2020
- It has to be said - 5 April 2020