On Wednesday, Finance Minister Tito Mboweni tabled a budget that put fiscal consolidation front and centre in a bid to contain mounting state debt and proposed cutting R160 billion from the public wage bill over the next three years

The figure is roughly equal to the sum the state has doled out to struggling state-owned enterprises in recent years and sees National Treasury put its foot down with the public service for the first time, as South Africa tries to ward off a downgrade to junk status by Moody’s ratings agency.

Mboweni said he believed the Treasury and trade unions “will find each other” on the measure, and Moody’s would favourably appraise the government’s efforts to bring the deficit back under control.

“Our reading is that they will react to how they read our fiscal stance… I don’t know, but I don’t think they will re-rate us on our fiscal stance,” he told the media shortly before he tabled his budget in the National Assembly.

His speech set out the state’s plans to curb spending by R156,1 billion over the next three years, with savings of R37,8 billion to be realised in the 2020/21 financial year.

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Mboweni prefaced an appraisal of the bleak metrics of the economy by saying achieving stronger growth and stemming record unemployment was possible, provided government mapped out a plan.

“Winning requires hard work, focus, time, patience and resilience. Achieving economic growth and higher unemployment levels requires a plan,” he said.

The economy is now estimated to have expanded by just 0,3 percent in 2019, down from a forecast of 0,5 percent given in the medium-term budget policy statement in October. For 2020, Mboweni adjusted the country’s gowth forecast down to 0,9 percent.

Gross government debt is expected to rise to 71,6 percent of GDP by 2022/23 while interest on debt is already absorbing 15 cents of every rand collected in taxes. Dampening the outlook further, tax collection for the year is now expected to be R63,3 billion lower than earlier predicted, at R1,58 trillion.

Mboweni said in the interests of growth, a firm decision was taken not to raise taxes to increase revenue but rather to give a measure of real personal income tax relief. This will happen through inflation adjustment in all brackets, while transfer duties will be removed on all properties costing R1 million or less.

“This budget means that a teacher who earns on average R460 000 a year, will see their income tax reduced by over R1 500 a year,” he said.

The minister said the economy would be boosted by opening markets to trade with the rest of Africa, lowering the cost of doing business, strengthening the macro-economic framework, and restructuring state-owned enterprises.

Some R60 billion would still flow to troubled state power utility Eskom and national carrier South African Airways in the coming financial year, but spending would increasingly focus on health, education and social development.

“Our measures will support growth. But fiscal sustainability will be uppermost in our mind,” Mboweni said.

Turning to the aloe plant he referenced in his budget speech, he added: “Our Aloe ferox can withstand the long dry season because it is unsentimental. It sheds dead weight, in order to direct increasingly scarce resources to what is young and vital.”

The review of the public wage bill would see remuneration contract by one percent in real terms over the three-year medium term period, translating into a cut of R160,2 billion, the finance minister said. These reductions make up the bulk of the state’s consolidated savings cuts of R156,1 million over the next three years, compared to the 2019 budget projections.

“The total reduction is mainly the result of lowering programme baselines and the wage by bill by R261 billion. These are partially offset by additions and re-allocations of R111 billion. Of this, more than half, or R60 billion, is for Eskom and South African Airways,” Mboweni said.

The National Treasury said the measures set out in the budget are expected to narrow the consolidated budget deficit from 6,8 percent to 5,7 percent of GDP by 2022/23.

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Author: ANA Newswire