A CRISIS LIKE NO OTHER

“This is a crisis like no other,” were the Minister of Finance’s words to the nation, when he gave the first Medium-Term Budget Policy Statement (MTBPS) of his tenure in office. Minister Enoch Godongwana’s welcome to parliament as the accounting officer for Treasury could not have come at more of a difficult time. His first MTBPS was also the 25th one tabled to parliament.

2020 saw a 6.4% contraction in GDP, as economic activity was stifled by efforts to combat the spread of the pandemic.Treasury now expects real growth to sit at 5.1%, 1.8 percentage points up from earlier in the year.

Gondongwana took over the reins of a department that has to find a balance between fiscal responsibility and social expenditure while still meeting the goals set out in the National Development Plan. “The 2021 Medium-Term Budget Policy Statement is about navigating South Africa’s path to economic and social recovery, drawing on the resilience of her people as well as restoring the sustainability of our public finances and the dignity of our people in the face of a once-in-a-lifetime pandemic,” said the Minister.

The tools the government will use to achieve this include structural reforms and social expenditure policies geared at providing immediate support. The Minister repeated the state’s position on long-term support: “Let me however reiterate that a permanent solution in responding to these challenges is to achieve high and sustained levels of economic growth.”

Beyond structural reforms and spending priorities, the speech was also notable for an update on the review of procurement processes, which will be safeguarded against corruption through the Public Procurement Bill, which is now in its final stages. “We anticipate that the Bill will be tabled before Parliament in the 2022/23 financial year,” said the Minister. 

Another announcement was regarding retirement reform, which is still in the early stages. The proposal involves providing access to one part of your contribution before retirement, while the other would be saved until you retire:

“On retirement reforms, we are proposing measures to boost household savings by increasing preservation before retirement and to increase flexibility through partial access to retirement funds through a “two-pot” system.”

FISCAL RESPONSIBILITY

“We cannot do everything we want at the same time.”

In his speech, the Minister lamented more than a decade’s worth of expenditure which far exceeded tax revenues. The spending followed the 2008 financial crisis and was aimed at mitigating the effects of the crisis. To fund the spending, the state was taking on debt, a trend Gondongwana, following on from his predecessor Tito Mboweni, are adamant must end. Narrowing the deficit and stabilising debt are high on the agenda. It is hoped that a primary budget surplus will be achieved by 2024/2025.

STRUCTURAL REFORMS

The MTBPS identifies six structural reforms that will be accelerated going into 2022. The reforms are being implemented to  “lower the cost of doing business and create a more competitive economy.” 

  1. Diversification of the energy supply
  2. Release of broadband spectrum
  3. Third-party access to freight rail network
  4. eVisa system roll-out
  5. Review of laws governing skilled migration
  6. Aggressive infrastructure investment

The first on the list is certainly the most important. Without a reliable supply of energy our economy will continue to stagnate, making the long-term strategy of using GDP growth as a solution to social issues even more difficult. 

The increase in the licensing threshold for independent power producers has opened up opportunities for them to sell directly to consumers, which eases pressure on the national grid, lowering the possibility of more blackouts. “Over the longer term, creating a competitive energy market will help contain the costs of generating electricity and support GDP growth,” said the Minister.

SPENDING PRIORITIES

“Overall, the South African government is acknowledged as having one of the most comprehensive and expansive social security systems in the world, and there are ongoing discussions about the social security net.”

The consolidated budget for 2020/2021 is R2.13-trillion. Over the medium-term, debt-service costs are expected to increase by an average of 10.8% over the medium-term, compared to expenditure by function which declines by an annual average of 0.4%. Areas such as education, healthcare, housing, healthcare and social wages, will average R1.06-trillion per year in expenditure over the next three years.

R3-billion in contingency reserve has been allocated for the purchase of vaccines, in addition to the more than 73 million doses procured during the course of 2021. In response to the social unrest in July, the South African Special Risks Insurance Association (Sasria) has been given R11-billion. To limit the impact of the crisis on employment, R74-billion has been set aside for government employment programmes.

With the end of the Loan Guarantee Scheme, R2.3-billion will now be spent on business support services, as the government considers new programmes to assist small businesses in recovering from the pandemic. Higher education has received R56.8-billion in funding this year, with R158.8-billion expected over the 2022 Medium-Term Expenditure Framework (MTEF). Municipalities will receive R450-billion, and transfers to provinces will total R2-trillion over the medium-term.

SPENDING BREAKDOWN 

  • Learning and culture: R417.8-billion
  • Health: R259-billion
  • Social development: R399.6-billion
  • Community development: R218-billion
  • Peace and security: R219.3-billion
  • General Public Services: R70.8-billion
  • Payments for financial assets: R68.4-billion
  • Debt Service Costs: R269.2-billion

KEY NUMBERS FROM THE MTBPS

  • R4-trillion in debt
  • R269.9-billion debt-service costs
  • R1.5-trillion expected tax revenue
  • 7.8% consolidated budget deficit
  • R2.13-trillion in consolidated budget 

CONCLUSION

The Minister concluded his speech with a rallying cry to all stakeholders as the state pursues its mission to recover, obtain stability, reform and grow our economy:

“This medium-term policy statement is a call to action. A charge to ourselves to once again renew the promise of a country that many fought for and have sacrificed much. We must continue to focus on saving lives and livelihoods. Between now and February 2022 we will be working on the details of measures to deal with the socio-economic challenges we face, especially the crises of unemployment and poverty. This must be done in a manner that does not depart from the strategy of stabilizing government debt. Recommendations in this regard will depend on the availability of resources, including policy trade-offs and reprioritization.”

Sources:

www.treasury.gov.za

 

*Check out the latest edition of the Public Sector Leaders publication here.

For enquiries, regarding being profiled or showcased in the next edition of the Public Sector Leaders publication, please contact National Project Manager, Emlyn Dunn:

Telephone: 086 000 9590 |  Mobile: 072 126 3962 |  e-Mail: emlyn.dunn@topco.co.za