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Business says Medium-Term Budget lacks clear fiscal plan

Finance Minister Enoch Godongwana

Finance Minister Enoch Godongwana

2nd November 2023

By: Thabi Shomolekae

Creamer Media Senior Writer

     

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Business noted on Thursday that while Finance Minister Enoch Godongwana outlined government’s strategy to avoid a full-blown fiscal crisis and systemic risks to the economy, it is concerned that although the focus is now firmly on structural reform as demanded, those responsible for its implementation cannot be trusted as the nation “has been here before”.

Godongwana delivered his Medium-Term Budget Policy Statement (MTBPS) on Wednesday, in Parliament, where it was announced that government now expected to earn almost R57-billion less in taxes than it previously forecast.

The Federation of Unions of South Africa highlighted that it understood the need to cut down spending, as revised down by R21-billion this financial year, R64-billion in 2024/25 and R69-billion, the year after.

The federation highlighted that these proposals came as no surprise as government had been open about the intention to cut spending.

“However, we disagree with the approach which seeks to apportion the responsibility for these savings to government departments through the cost-containment guidelines issued by the National Treasury some weeks ago,” said the federation.

Business Leadership South Africa CEO Busi Mavuso welcomed Godongwana’s commitment to stabilise public finances and reform the economy to generate higher growth.

“As we expected, revenue has fallen short of the amounts initially budgeted for this year and as a result the budget deficit will be 4.9% of gross domestic product (GDP), considerably worse than the previous estimate of 4%. However, the minister committed to a number of important targets, including fiscal consolidation, reduced expenditure, no significant tax increases and reorganisation of government functions. Spending was revised down by R21-billion for the current financial year with further reductions of R64-billion in 2024/25 and R69-billion in 2025/26 proposed,” said Mavuso.

She said this was highly positive for government’s credibility as a custodian of the public purse, showing the discipline needed to manage expenditure in the face of far higher debt costs and very little room for tax increases.

She highlighted that Godongwana recognised that the most effective way of funding government is through an efficient tax administration and by broadening the tax base, which required improving the efficiency of tax collection but also measures to grow the economy.

North-West University Business School's Professor Raymond Parsons highlighted that while it may have been inevitable that the Medium-Term Budget allowed public debt levels to rise even further, it must be seen as a stop-gap measure that still needed to be remedied by appropriate economic steps.

Parsons explained that South Africa's public finances remained on a slippery slope, and the risks to the fiscal outlook remained elevated.

“It is, thus, necessary that such remedies and reforms as were promised in the Medium-Term Budget are tangibly implemented as soon as possible. With the overall debt-to-GDP ratio now projected to reach 77% in two years' time, this will be the highest ever in South Africa’s fiscal history. What still appears to be lacking in the 2023 MTBPS is a clear fiscal plan to wind down deficits and government spending over time,” he said.

CUTS TO CABINET PORTFOLIOS

The Free Market Foundation (FMF) has urged National Treasury to take the steps needed to mitigate the current economic crisis that South Africans are facing.
 
“Our economic situation demands decisive action. The current gross deficit is R54.7-billion higher than forecast in the February Budget, and could well be much higher if current budget trends are realised. Taxpayers simply cannot afford the extent of government spending. Serious cuts need to be made urgently”, said FMF CEO David Ansara.

He said the Minister's intimations of fiscal responsibility were welcome, but wholly insufficient given the scale of the crisis. 

The FMF urged government to start limiting State spending by cutting any Cabinet portfolio and Cabinet department that was not clearly required by the Constitution or essential to the functioning of the economy.

“We also call on government to drop financially unsustainable plans like the National Health Insurance or the Basic Income Grant,” said Ansara.

Alternative Information and Development Centre (AIDC) noted that the 2023 MTBPS continued the “harsh austerity trajectory” that the government had committed to from 2019.

The National Treasury aimed to reduce spending as a percentage of GDP by 1.5% by 2025/26. R21.7-billion was cut from the Budget announced in February, when excluding the ‘additions’ to the public sector wage bill which ought to have been budgeted for in the main Budget, it said.

AIDC highlighted that compared to this financial year, the MTBPS had a plan to make real cuts over three years of another R42-billion from Education (‘Learning and Culture’), R30-billion from Public Health and R31.5-billion from the police and the Courts.

“Again, it is the majority of working-class women who will suffer. They are the majority of workers in the health and education sectors,” AIDC noted.

VACANCIES OF PUBLIC SERVANTS

The Public Servants Association (PSA) said it was not impressed with cost-containment measures as proposed by National Treasury, which it said clearly indicated that public servants were, once again, on the short end of the stick.

“These measures will have a negative effect on the filling of vacancies whilst there is a critical need to fill such vacancies. Public servants’ capacity is stretched to the limit and this impacts on their ability to render efficient services to citizens,” it said.
 
PSA explained that the Minister had painted a grimmer fiscal picture than ever before, with gross debt rising from R4.8-trillion in 2023/24 to R5.2-trillion in the next financial year.

It added that by 2025/26, the forecast was that it would exceed the R6-trillion mark.

“The projected deficit of 4.9% of GDP is of grave concern and the Minister failed to identify ways of addressing the continuous GDP deficit. The PSA, however, welcomes the plan to review State entities and other government programmes over the next three years, as this is overdue,” the PSA said.

RESTRUCTURING AND PARTNERSHIPS 

Consulting Engineers South Africa CEO Chris Campbell explained that government's call for increased private sector involvement in infrastructure financing and expertise, as well as other initiatives, as mentioned in the MTBPS, was a positive step.

Campbell added that restoring trust between the public and private sectors was paramount and it was important that the partnership be wholeheartedly welcomed.

“For too long, we have hesitated to engage in such collaborations. Given the constraints of the national Budget, this hesitancy is no longer viable; it has become a necessity. Disregarding the private sector's role in funding is not an option. Additionally, it is crucial to highlight that a greater degree of policy and political certainty will be essential to ensure that the public and private sectors embrace partnership opportunities,” he said.

Matrix Fund Managers head of macroeconomic strategies Kim Silberman noted that it was expected that by 2025/26 a decision would have to be made with respect to restructuring and rationalising government’s spending on the Social Relief of Distress Grant, job programmes, social grants and free basic service provisions.

“Without this, South Africa will have to adopt increasingly unorthodox and interventionist public finance policy measures, in order to keep issuing debt at yields which are in line with our current BB rating,” she said.

PPS Investments said that going forward, South Africa still had major challenges to overcome, many of which stemmed from the fact that the country’s debt position was unsustainable. PPS noted that given the country’s structurally low growth economy, its debt trajectory wwould not improve until South Africa could sustainably engineer a Budget surplus.

“In the absence of growth, this is extremely difficult to achieve politically,” PPS added.

Edited by Sashnee Moodley
Senior Deputy Editor Polity and Multimedia

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