“Today we set out a course back to prosperity. Growth is slowly returning. Things are looking better,” said Finance Minister, Tito Mboweni when he tabled his Medium-Term Budget in parliament on Wednesday.
He acknowledged the devastation that the coronavirus pandemic had had on the country’s economy. Mboweni, however, was confident that with good planning and a focus on job creation and infrastructure development, South Africa could recover.
He emphasised the importance of President Cyril Ramaphosa’s Economic Reconstruction and Recovery plan.
“This particular plan is urgent and all of us should do everything in our power to implement it,” urged Mboweni. The government also plans to increase taxes over the next five years, but Mboweni did not go into detail as to which taxes would increase.
— Presidency | South Africa (@PresidencyZA) October 28, 2020
SA economy to contract by 7.8%
“A sharp – and hopefully short – global recession is underway,” noted the finance minister.
“The economy is now expected to contract by 7.8 per cent this year, and the 2021 outlook is more uncertain. Job losses have been particularly severe,” said Mboweni. However, he forecast that the economy would rebound and grow by 3.3 per cent in 2021, 1.7 per cent in 2022, and 1.5 per cent in 2023.
Keys to boosting the economy:
Electricity, infrastructure and job creation are at the heart of the plan to rebuild the country’s economy.
- “Improving the supply of electricity is urgent,” said Mboweni. “In line with our plan, there is progress in allowing municipalities to buy electricity from different sources.”
- “Infrastructure is at the centre of the plan,” highlighted Mboweni. “Subsidies of R2.2 billion will support the Social Housing Programme aimed at poor, working South Africans.”
- “We are happy to announce today that we are allocating 6 billion in this financial year to the game-changing employment initiatives championed by the President,” said Mboweni.
Easing of cross-border business
Mboweni announced that the government had also taken further steps to make cross-border business easier, including inward listings, loop structures and corporate foreign borrowings.
“Work is well advanced to modernise the cross-border flows management regime to support South Africa’s growth as an investment and financial hub for Africa,” he said.
Social Relief of Distress grant extended
The Cabinet has decided to extend the Social Relief of Distress grant to the end of January 2021. Because this grant is so effective in reaching the unemployed, we propose to redirect R6.8 billion from the public employment programme allocation.
The temporary increases in other grants will unfortunately have to come to an end.
The medium-term fiscal strategy
“The Cabinet remains resolute and will walk through the narrow gate towards fiscal sustainability,” said Mboweni.
“We act to instil confidence amongst discouraged work seekers, businesses bruised by lockdown and facing uncertainty, farmers and farm workers who produce the food for the country, and our international partners who know that South Africa is a great place to invest.”
- R3 billion was allocated to the Land Bank in June. “The Bank will require an additional R7 billion over the medium-term to support its restructuring,” said Mboweni.
- 5 billion is allocated to SAA to implement its business rescue plan. “This allocation is funded through reductions to the baselines of national departments, public entities and conditional grants. This allocation is in addition to the R16.4 billion allocated over the 2020 MTEF in the February Budget for settling guaranteed debt and interest.”
The MTBPS in pictures. Parliament. Cape Town, 28 October 2020. Ku rough! pic.twitter.com/m2qp6jypHH
— Tito Mboweni (@tito_mboweni) October 28, 2020
While many commenters were encouraged by Mboweni’s optimistic and realistic stance, some also questioned the continual bailouts for state owned enterprises. SAA will receive a further R10,5bn from SA coffers.
“We hope that Finance Minister Tito Mboweni is right about the economy returning to growth next year,” said Gerhard Kotzé, MD of the RealNet estate agency group. “We welcome all the Medium-Term Budget allocations to support job creation initiatives, and especially those projects that aim to create new infrastructure and repair SA’s decaying road and rail networks.”
“It does not seem likely that this revenue shortfall can be recovered solely by cutting public spending”
However, he says, some serious concerns remained unanswered by the Minister today, the first of these being what new taxes or tax increases South Africans can expect in the light of the huge increase in the Budget deficit from 6,4% of GDP at the start of this year to almost 15,7% of GDP now.
“It does not seem likely that this revenue shortfall can be recovered solely by cutting public spending, especially since there is such resistance to cutting the public sector wage bill,” said Kotzé.
“In general, this budget is likely to be discounted by perceptive analysts and businesspeople as too optimistic, given the steadfast commitment of government to greater state intervention and expenditure,” said a statement from Sakeliga CEO, Piet le Roux.
“The South African fiscus is deteriorating into what is by far its worst shape in history, threatening a decisive breach of the so-called Bernholz ratio, an international benchmark for fiscal and currency crises.
“SAA vanity project”
“The Mid-Term Budget robs the poor to save the SAA vanity project,” criticised Wayne Duvenage, OUTA CEO. “OUTA calls for public boycott against SAA in disapproval of the bailout of the SOE the country doesn’t need.”
“OUTA believes that SAA should be liquidated in a manner which has the least impact on the country. The staff should get reasonable retrenchment packages, but this airline should no longer be supported. South Africa has much bigger priorities than a state-owned airline.”
“South Africans thrown under the plane”
“The granting of another R10.5 billion bailout to SAA, on top of R16.4 billion allocated in February’s main budget, shows the ANC’s disregard for poor South Africans,” said Geordin Hill-Lewis MP – DA Shadow Minister of Finance. “Minister Mboweni should have held the line and refused this bailout.”
This new bailout to SAA is funded by (among others):
- Cutting the policing budget by R1.2 billion;
- Cutting the education budget by R1.4 billion;
- Cutting the budget for the courts and the prosecuting authority by R1.2 billion; and
- Cutting conditional grants to provinces and local governments, for things like new schools and health services, by R12 billion.