Tito Mboweni and his Medium Term Budget Promises – Huge Shortfall Predicted

Newly appointed South African Finance Minister, Tito Mboweni is currently busy with his Medium Term Budget Speech in Parliament. Below are some of the highlights so far:

Growth outlook revised downwards

South Africa’s growth outlook has been revised downwards to 0.7% in 2018, said National Treasury on Wednesday.

“The National Treasury forecasts that GDP growth will slow to 0.7% in 2018, down from 1.3% last year, before rising to 1.7% in 2019 and 2.1% in 2020,” said Treasury as Finance Minister Tito Mboweni tabled his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament.

Treasury said that the country’s economic outlook is weaker than projected in the February 2018 Budget, which forecast 1.5% and 1.8% Gross Domestic Product (GDP) growth in 2018 and 2019, respectively.

“These revisions reflect lower production by agriculture and mining in the first half of the year, as well as a lack of new investment,” said the MTBPS statement while also adding that agriculture and mining are expected to return to moderate growth in the next year.

Meanwhile, business and consumer confidence are expected to improve gradually over the medium term.

On inflation, the MTBPS document stated that higher inflation is expected during the remainder of 2018 in response to administered price increases.

“Headline inflation is projected to average 4.9% in 2018, rising to 5.4% by 2021 as food price inflation returns to its historic average,” it said.

On investment, Treasury said the country has experienced an extended period of weak investment.

“Growth in gross fixed-capital formation, after slowing to 0.1% in the first half of 2018, is expected to measure 0.9% for the year as a whole, and 2.9% by 2021.

“Low levels of demand and prolonged policy uncertainty have contributed to anaemic investment growth,” said Treasury.

In recent months, government has worked actively to improve the investment climate by strengthening governance in state institutions and removing policy bottlenecks in energy and mining.

This comes on the back of President Cyril Ramaphosa’s announcement of South Africa seeking to bring in at least R1.2 trillion worth of investment over a five year period. – SAnews.gov.za

Budget deficit widens to 4.3%

The budget deficit for the 2018/19 financial year is expected to widen to 4.3% of the Gross Domestic Product (GDP) – which is higher than the 2018 Budget estimate of 3.8%.

According to the National Treasury’s Medium Term Budget Policy Statement, this is mainly as a result of tax revenue shortfalls.

“Over the next two years, higher debt service costs and transfers from the Southern African Customs Union (SACU) agreement, and lower revenue, widen the main budget deficit by an average of 0.6% of GDP.”

The National Treasury said the primary balance – the difference between revenue and non-interest spending – narrows over time, stabilising at 0.2% of the GDP in 2021/22.

The National Treasury said, meanwhile, that the cost of servicing government debt is expected to exceed 2018 Budget estimates by R1 billion in 2018/19, R4.9 billion in 2019/20 and R7.9 billion in 2020/21.

“This reflects a larger main budget deficit, currency depreciation and higher interest rates. An estimated 15.1% of main budget revenue will be used to service debt in 2021/22 compared with 13.9% in 2018/19.”

Government’s debt management strategy

The National Treasury said government’s debt management strategy is informed by strategic risk benchmarks for interest, inflation, the currency and refinancing.

“This ensures that the debt portfolio can accommodate changes in the fiscal stance and minimise debt-service costs and refinancing risk.

“In recent years, government has lengthened the debt maturity profile and successfully managed refinancing risk in the long-term debt portfolio. The longer maturity profile allows government to consider increased issuance in the 5- to 10-year maturity bracket to reduce debt-service costs,” the National Treasury said.

The Medium Term Policy Statement, tabled in Parliament by Finance Minister Tito Mboweni on Wednesday, also pointed to the fact that gross loan debt is expected to increase from R2.8 trillion or 55.8% of GDP in 2018/19 to R3.7 trillion or 58.5% of GDP in 2021/22, mainly to finance the budget deficit.

Fluctuations in inflation, interest and exchange rates since the 2018 Budget also affected debt.

“The weaker rand accounts for about 70% of the R47.6 billion upward revision to gross loan debt in the current year. Debt is expected to stabilise at 59.6% of GDP in 2023/24 – at a higher level and a year later than projected in the 2018 Budget.

“Net debt – gross loan debt minus cash balances – stabilises at 56.5% of GDP in 2025/26.”

Infrastructure fund to be fleshed out in February budget

The specifics of the infrastructure fund, announced as part of South Africa’s stimulus package, will be announced in the February 2019 Budget.

“The infrastructure initiative announced by the President [Cyril Ramaphosa] builds on efforts to transform public infrastructure provision. It will support projects with “blended” finance, combining capital from the public and private sectors and development finance institutions.

“Work to design the fund is under way, with assistance from the private sector and multilateral development banks,” said Treasury on Wednesday.

The President announced the stimulus and recovery package at the Union Buildings in Tshwane in September. It aims to address low economic growth and high unemployment.

The unveiling of the stimulus package came at a time when data released by Statistics South Africa revealed that South Africa had fallen into a technical recession in the second quarter with the economy shrinking by 0.7% quarter on quarter following a revised 2.6% contraction in the first quarter of 2018.

The stimulus package focused on five interventions including implementing growth-enhancing economic reforms, the establishment of an infrastructure fund and well as tackling urgent matters in education and health.

In the Medium Term Budget Policy Statement (MTBPS) government announced that increased investment in social and economic infrastructure will be a focus of economic recovery over the medium term with public sector infrastructure plans estimated at R855.2 billon over the medium term.

Of this, state-owned companies will account for R370.2 billion while general government accounts for the remaining R485 billion, mainly in the form of conditional infrastructure grants.

Tabling the MTBPS in Parliament on Wednesday, Finance Minister Tito Mboweni said too many projects are poorly prepared for.

“A central policy objective is to promote an increase in capital investment by the private sector,” stated the policy statement, which highlighted several interventions that will be made to increase the efficiency of existing public infrastructure spending.

These include addressing weaknesses in infrastructure planning, government, development finance institutions and private-sector partners have begun work on a project preparation facility.

“Government will report on the progress of these deliberations in the 2019 Budget. The fund is expected to identify innovative financing mechanisms and allow for accompanying regulatory reforms,” said the MTBPS document.

The fund is expected to identify innovative financing mechanisms and allow for accompanying regulatory reforms.

Framework for investors

Meanwhile, government also announced that a framework for investors to assess potential long-term returns on public infrastructure projects will be developed.

This will support funding from development finance institutions, commercial banks and pension funds.

Innovative financing mechanisms – such as initial capital payments, current subsidies or guaranteed offtake agreements – may also be proposed alongside regulatory reforms.

“Government will publish a list of projects suitable for private-sector and development finance support,” it said, adding that this will be evaluated on matters such as whether the project will have clear social benefits. – SAnews.gov.za

Government reigns in public service spending

Government will maintain its expenditure ceiling and contain the public service compensation budget as a push is made to retain fiscal discipline, the National Treasury said on Wednesday.

In a bid to achieve a balanced fiscal consolidation – including stabilising debt and narrowing the budget deficit, the National Treasury said it would reprioritise funds from non-performing areas in a move that will enable government to support President Cyril Ramaphosa’s recently announced stimulus package.

This comes as the National Treasury’s Medium Term Budget Policy Statement projects revenue collection lower than the 2018 budget estimates that were announced in February.

“The expenditure ceiling will be maintained for the next two years and is set to grow at 1.5% in real terms in 2021/22 — largely in line with average real GDP growth over the past decade.

“Non-interest expenditure remains broadly unchanged as a share of GDP over the medium term. In real terms, non-interest spending grows by an average 1.9% per year. This includes a contingency reserve amounting to R7 billion in 2019/20, R8 billion in 2020/21 and R12 billion in 2021/22,” the National Treasury said.

The National Treasury said reigning in spending would be made possible by implementing several policy measures, including reprioritizing funds from non-performing areas amounting to R32.4 billion over the next three years.

“Funding of non-performing and under-performing areas has been reallocated, baselines have been reduced, the contingency reserve has been drawn down and provisional allocations have been adjusted.

“Reprioritised resources support the President’s economic stimulus and recovery plan, and some non-discretionary and infrastructure spending pressures. In addition, R14.7 billion has been shifted within grants for upgrading informal settlements,” the National Treasury said.

Addressing an embargoed media briefing earlier, Finance Minister Tito Mboweni said: “A lot of it is about reprioritisation of expenditure and pulling things together”.

In 2016, government introduced legally binding compensation ceilings for national departments.

These ceilings remain unchanged over the three-year period ahead, with departments expected to absorb any shortfall within their current allocations.

DPSA to help departments contain wage budgets

The National Treasury said, meanwhile, that the Department of Public Service and Administration will assist departments facing increased wage cost pressures.

This comes as recently signed three year public service wage agreement – comprising a cost-of-living adjustment and an extension of the housing allowance to cover spouses – pushed the wage costs to R242.7 billion over the next three years, exceeding the R212.5 billion budgeted for salary increases and other conditions of service.

“Government’s current wage bill accounts for about 35% of consolidated spending. No additional funding is available over the 2019 MTEF period. Instead, departments need to fund shortfalls by adjusting within their compensation baselines.

“This means increasing efficiency, and carefully managing overtime and performance incentives,” the National Treasury said.

Treasury projects R27.4bn shortfall

National Treasury says South Africa is at a crossroads, as revenue is projected to fall short of the budgeted estimate by R27.4 billion this year.

This, according to the National Treasury’s Medium Term Budget Policy Statement (MTBPS), is due to the fact that economic growth took a knock, coupled with a once-off payment of value-added tax (VAT) refunds.

“Revenue collection for the first six months of 2018/19 grew by 10.7% compared with the same period last year.

“However, the technical recession experienced in the first half of the year has begun to feed through to revenue collection, which has slowed.

“Weaker economic growth, alongside a once-off payment of overdue VAT refunds, will result in an in-year revenue shortfall now estimated at R27.4 billion, relative to the 2018 Budget estimate,” National Treasury said.

It said during the 2017/18 financial year, for the first time since the 2008 global financial crisis, tax revenue growth did not exceed GDP growth.

Revenue shortfalls have widened over the past four years, with under-collections rising from R7.4 billion in 2014/15 to R49 billion in 2017/18.

“These shortfalls would have been larger were it not for increases in personal income, dividend withholding, capital gains and other taxes.

“Revenue collections in 2017/18 were R0.8 billion lower than estimated in the 2018 Budget.”

Treasury said a backlog of VAT refunds at SARS and an underestimation of refunds due has led to an overly optimistic view of revenue growth.

“Net VAT collections account for about R20 billion of the in-year revenue shortfall. Two factors account for the revision in net VAT. The VAT refund estimate has been revised upwards by R9 billion, and about R11 billion will be paid out to clear the backlog in the VAT credit book,” National Treasury said.

The remaining R7.4 billion of the shortfall in the current year mostly reflects slower corporate income tax collections due to weak growth in wholesale and retail trade, manufacturing and transport.

“Personal income tax continues to be negatively affected by job losses, moderate wage settlements, lower bonus payments and a slower expansion of public sector employment.

“Public testimony at the Nugent Commission of Inquiry has underlined concerns about severe governance and administrative weaknesses within SARS over the past several years.

“The commission has submitted an interim report to the President, with the final report due on 30 November 2018.

“Government is committed to tackling concerns related to SARS in an open manner. Ensuring transparency in tax administration will help to rebuild taxpayer confidence and compliance,” Treasury said.

R500m to recruit health professionals, buy beds and linen

Government will reprioritise funds to make R350 million available to recruit new health professionals, says Finance Minister Tito Mboweni.

The Minister tabled the Medium Term Budget Policy Statement in the National Assembly on Tuesday.

“Access to health care services is enshrined in our Constitution and in our Bill of Rights. We will continue to work closely with the national Department of Health and other role players to ensure that the gradual phased implementation of the National Health Insurance is adequately financed.

“We are immediately reprioritising R350 million to recruit in excess of 2000 health professionals into public health facilities,” he said.

Mboweni said a further reprioritisation of funds will avail R150 million to be used to purchase beds and linen for hospitals where the need is more dire.

These two interventions will build on the Presidential Health Summit convened last weekend, which has brought a new focus to improving the quality of healthcare.

Meanwhile, the National Treasury said in its Medium Term Budget Policy Statement that government is strengthening community-based services to improve primary healthcare and extending health coverage to all South Africans.

“To enhance the quality of care, the Office of Health Standards Compliance is auditing quality standards in health facilities.

“Over the [next three years], an additional 2 200 critical medical posts will be created in provinces and medical student internships will expand.

“The Community Health Worker Programme will implement the minimum wage and funding is allocated to provinces from 2021/22 to support this. Funds are also provided to expand antiretroviral treatment in support of the universal test-and-treat policy.”

The National Treasury said the construction of a 488-bed academic hospital in Limpopo is expected to begin in 2019/20.

“In preparation for National Health Insurance, the Department of Health and the National Treasury are working on a new payment mechanism, based on the number of patients served, for contracted general practitioners.

“Health sector budgets are generally under pressure due to an increased caseload and budget constraints.

“Unpaid bills and medico-legal claims pose significant risks. The Department of Heath will work with provinces to enhance the quality of the care they provide and improve their audit outcomes,” it said.

The department will establish expert teams to assist provinces in mediation and litigation processes to manage medico-legal claims.

Sanitary pads, white bread flour to be added to VAT free items

Finance Minister Tito Mboweni says government proposes that come April 2019, three items, including sanitary pads, will be added to the zero-rated list.

Earlier this year, government increased value-added tax (VAT) from 14% to 15%. An independent panel of experts to review the list of 19 zero-rated food products was set up to consider how best government could mitigate the impact of the VAT increase on poor and indigent households.

The panel of experts has since released the report and recommended that six items be added onto the list of zero-rated items.

“An independent panel of experts investigated options to mitigate the impact of the VAT increase on lower income households.

“My thanks to the panel for their excellent work. I would also like to thank the 30 000 individuals and NGOs who provided comments on the panel’s recommendations,” Mboweni said.

The Minister received 3 299 tweets from Twitter users, with one of them, Tintsi Ngwenya, saying, “Sanitary pads should be tax free”.

Mboweni said from 1 April 2019, sanitary pads, bread flour and cake flour will be zero-rated.

“The revenue loss associated with zero-rating these items is estimated at R1.2 billion. However, zero-rating these products targets low-income households and restores the dignity of our people,” he said.

The announcement will come as good news to several women’s advocacy groups, who have for months taken their calls for removing VAT from sanitary products, with some saying it was unfair to impose a tax on a product that women need for biological reasons.

Carbon tax postponed to 1 June 2019

The Minister said, meanwhile, that after hearing the concerns of business and labour during Parliamentary hearings, the implementation of the Carbon Tax has been postponed by six months.

“The carbon budgeting system and the carbon tax will be aligned. This is done by imposing a higher tax rate as a penalty for emissions exceeding the carbon budget.

“The original date of implementation was 1 January 2019, but this will be postponed to 1 June 2019.”

Corrupt officials in Giyani Water Project to feel the heat

Finance Minister Tito Mboweni has instructed his department to work with the Department of Water and Sanitation to take action against officials fingered for corruption in the Giyani water crisis.

The Minister made the announcement when he tabled his maiden Medium Term Budget Policy Statement in the National Assembly on Tuesday.

The Giyani Water Project, which has returned to the spotlight due to media reports, has been plagued with malfeasance.

“It is a cesspool of corruption. The challenges range from a complete disregard for supply chain rules to poor contract management, resulting in irregular expenditure.

“It is clear that a new delivery and financing model is required to provide water services to communities,” he said.

Mboweni said a key element of the new approach will be a stronger focus on project management and contract governance to ensure that projects, such as the Giyani Water Project, are fit for purpose and maximise value for money in the water sector.

“I have asked the Director General of the National Treasury to work with the Department of Water and Sanitation to ensure that appropriate action is taken against all guilty officials implicated in the Auditor General’s report.

“The President has informed me that he will go to Giyani to see exactly what has happened and what needs to be done,” he said.

Urgent intervention in the Vaal River crisis

The Minister said, meanwhile, government was dealing with the water crisis in the Vaal River System “decisively and urgently”.

“Our immediate focus is to mobilise short-term financing by reprioritising funds and increasing capacity.

“I have asked the President and the Minister of Defence for the military to assist with engineering and other expertise to resolve the crisis in the Vaal River System.

“I am happy to report that approval has been granted. The generals in charge have already started working on solutions,” he said.

At a media briefing earlier, Mboweni said intervening in the Vaal water crisis was imperative as it had emerged that drinking tap water in the area was no longer safe.

Government dealing with school sanitation

Government is attending to the sanitation issues faced by schools around the country, Finance Minister Tito Mboweni said on Wednesday.

“The largest allocations in the medium-term are for education, health, social development and community development,” said Mboweni as he tabled his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament.

These four areas will receive over 60% of non-interest expenditure.

Mboweni said no child should learn in a school that is unsafe.

“Our children must have access to adequate sanitation. We have committed to eradicating pit latrines at schools. The President [Cyril Ramaphosa] has directed that there be a plan to ensure all schools have safe and appropriate sanitation,” said the Minister.

Mboweni said government will ensure that female learners have access to sanitary pads, with several provinces already having rolled out the provision of free pads in schools.

“Funds will be added to the provincial equitable share to enable provinces to progressively further this objective.

Turning his attention to municipal social infrastructure improvement, Mboweni said all South Africans share the pain of poorly performing municipalities, which results in bad roads and unmaintained infrastructure, among others.

He said government is “acutely” aware that some municipalities are facing capacity constraints.

“Municipalities owe more than R23 billion to service providers, mainly Eskom, and water service agencies,” Mboweni said, adding that this was a reflection of weaknesses in governance, fraud and outright corruption.

“The funds lost by municipalities in the collapse of VBS Mutual Bank offer a dramatic illustration of how greed and corruption impacts the achievement of developmental objectives,” he said of the current storm engulfing the mutual bank, which has been placed under curatorship.

The Minister also spoke of the cases where contracts are awarded corruptly and construction costs are inflated.

“We must repair our towns and our streets, and fix the pipes under our roads,” he said.

Mboweni, however, noted that government is developing measures to improve transparency and governance processes.

Key to this, he said, is the employment of qualified, competent and incorruptible officials. – SAnews.gov.za

Reforms to boost the economy

Government on Wednesday announced the proposed reprioritisation of R32.4 billion over the next three years as part of reforms to boost the South African economy.

In the Medium Term Budget Policy Statement (MTBPS) on Wednesday, government said that the structure of South Africa’s economy is not conducive to high growth or job creation.

“These include creating policy certainty in the mining and energy sectors by finalising the Mining Charter and updating the Integrated Resource Plan,” said National Treasury.

It added that growth-enhancing policy initiatives are also underway in the telecommunications, electricity and transport sectors.

“To support these reforms within a constrained fiscal framework, government is proposing reprioritisation of R32.4 billion over the next three years,” it said as newly sworn in Finance Minister Tito Mboweni tabled his maiden MTBPS in Parliament on Wednesday.

Of this amount, said the document, R15.9 billion will go towards faster-spending infrastructure programmes (including R3.4 billion for school infrastructure and eradicating pit latrines), clothing and textile incentives, and the Expanded Public Works Programme.

The remaining R16.5 billion will be allocated to various programmes, including recapitalising the South African Revenue Service (SARS), a minimum wage for community health workers, critical posts and goods and services in health, and streamlining the management of the justice system.

In addition, changes to grant structures amounting to R14.7 billion will promote upgrading of informal settlements in partnership with communities.

Meanwhile, housing subsidies amounting to R1 billion will be centralised to better support middle- and lower-income home buyers.

“In the current year, R1.7 billion is added to infrastructure spending (including funding for fast-spending school building programmes), and R3.4 billion is allocated to drought relief, mostly to upgrade water infrastructure.”

Reforms

Fleshing out progress of President Cyril Ramaphosa’s stimulus package announced in September, the MTBPS further announced a framework for financing infrastructure which will be developed.

The MTBPS noted that a decade of poor economic performance and high unemployment has reinforced the urgent need for a comprehensive programme of reforms to change the underlying structure of the economy.

“Necessary structural reforms include modernising the energy, water, transport and telecommunications industries; lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth; enabling growth in labour-intensive sectors such as agriculture and tourism.”

“National Treasury modelling suggests that such reforms can raise Gross Domestic Product growth by as much as 3% over the next decade.”

Progress has been made in such areas including that the Department of Telecommunications and Postal Services has gazetted a proposed policy for the licensing of high-demand spectrum.

The communications regulator plans to auction spectrum for 4G services by April 2019, and simultaneously establish a wholesale open-access network to lower the cost of data.

Meanwhile, the departments of Energy and Public Enterprises, and the National Treasury, have begun work to determine how a restructured electricity sector can support long-term growth, a secure energy supply, a sustainable electricity utility and higher investment in electricity generation, transmission and distribution.

“Reviews of administered prices in other sectors, such as energy, are underway. Such reforms can boost long-term growth,” it said.

Rebuilding state institutions

On state institutions, government said while the process of rebuilding these is underway with the Judicial Commission of Inquiry into allegations of State Capture among others, challenges remain.

“While the scale of deterioration in the public sector is serious, key institutions established by the Constitution have proven resilient. Parliament, the courts and the Reserve Bank have helped to uncover corruption, with the support of a robust media.”

Treasury also highlighted its efforts to strengthen financial management which include enhancing public finance capacity-building in local government by deploying skilled professionals to manage and recover revenue. – SAnews.gov.za

Framework to assist departments in distress

National Treasury will develop a framework to address governance and financial performance for national departments in distress.

In the Medium Term Budget Policy Statement (MTBPS) tabled in Parliament on Wednesday, Treasury said government will intensify its efforts to improve spending efficiency, increase capacity and improve governance.

“Over the next 12 months, National Treasury will develop a framework to address governance and financial performance in national departments that are in distress, as prescribed by the Public Finance Management Act (1999) and the Constitution,” said Treasury.

It said while South Africa’s budgets for social and economic services are substantial, the quality of spending is in many areas unacceptably poor, undermining, and in some cases collapsing, service delivery.

“Poor governance, reflected in inefficiency, corruption and financial mismanagement reduces the impact of spending and increases pressure on the budget. Government has begun the process of rebuilding important state institutions.”

These failures, Treasury said, are beginning to be addressed.

Treasury said government projects total expenditure of R5.9 trillion over the 2019 MTEF [medium-term expenditure framework]. Spending will grow by an average of 7.8 % a year, reaching R2.1 trillion in 2021/22.

Despite moderate economic growth projections, spending growth will outpace inflation, with real non-interest expenditure growth expected to average 1.9 % over the period. – SAnews.gov.za

Attacks on Auditor General staff condemned

Minister of Cooperative Governance and Traditional Affairs (Cogta) Dr Zweli Mkhize has condemned attacks and acts of intimidation on staff of the Auditor General of South Africa (AGSA).

According to the Minister, staff members who have been deployed in municipalities to undertake audits of financial statements and performance information are being intimidated.

“I am particularly urging all municipalities to fully cooperate with and support the staff of the Auditor-General. Municipalities are at the centre of the economic revival being championed by President Cyril Ramaphosa and as such, they need to show prudence in how they spend public finances,” Mkhize said in a statement on Wednesday.

Cogta said an official that is part of the auditing team in Emfuleni was shot and wounded recently.

“The assailant entered the room at a bed and breakfast accommodation where they were staying and shot the auditor and stole the laptop computer. In other incidents, officials were threatened in Msunduzi and eThekwini municipalities earlier this year,” the department said.

The Minister said it is unacceptable that AGSA staff are being attacked and intimidated when carrying out their duties.

“All structures and spheres of government must provide full support and cooperation to the Office of the AGSA,” Mkhize said.

The Minister has also urged law enforcement agencies to follow up on the reported incidents and ensure that the perpetrators are dealt with by the criminal justice system. – SAnews.gov.za