‘A difficult time for ordinary South Africans’ as mid-term budget is released

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Wednesday afternoon, 25 October 2018, saw newly-appointed finance minister, Tito Mboweni deliver a sobering report on the reality of South African finances. Paulina French reports on the minister’s speech in parliament and what this means for ordinary South Africans.

I think, like many South Africans I often find myself reading national budget statements in summarised form and usually as reported by the press. Yesterday as the newly minted Minister of Finance, Tito Mboweni, delivered the Medium Term Budget Policy Statement (MTBPS), I listened to it live from parliament.

We know South Africa is in a very difficult position economically and many South Africans, especially the poorest, are experiencing the direct effects of this in their pockets. We cannot ignore the reality before the minister, which left him little with which to manoeuvre. He emphasised that if we make the right decisions now, we can start to stabilise the downfall in which we find ourselves and stop the inevitable freefall which will follow if we ignore this stern warning.

Let us report first on the good news in this budget. Not just good news — but good news for the poor for a change.

The panel appointed by our new-dawn president, Cyril Ramaphosa, to come up with solutions to mitigate the effects of the VAT increase on households with the lowest incomes is perhaps already showing fruit.  Based on their suggestion Treasury has decided that from 1 April 2019 three further items will be VAT zero-rated: sanitary pads, bread flour and cake flour. It is estimated that the revenue that will be lost as a result is R1.2 billion. More importantly we must remember that increasing the number of zero-rated VAT items will only be of benefit to the poor if producers and suppliers absorb the zero-rating of these items.

Sadly, it would seem that that is really where the good news must end.

The minister prefaced the meat of the MTBPS quoting the somewhat clichéd opening paragraph of Dickens’ A Tale of Two Cities, using this to denote where South Africans find themselves. “As a country, we stand at a crossroads. We can choose a path of hope; or a path of despair. We can go directly to Heaven, or as Dickens so politely puts it, we can go the other way. For ordinary South Africans, it has become a difficult time.”

The minister’s announcement of serious purse-pinching measures for government departments quickly followed. This is a stark reflection of the mismanagement of our fiscus over the last few years and of the diet that government needs to go on within their hallowed halls where for too long they have fatted their own calves.

Tito Mboweni is known for his ability to stand his ground. Such is the nature that has already manifested itself in some aspects of his maiden statement on the budget, even if the bulk of his presentation was likely prepared by the former minister before his resignation.

Mboweni made it clear that one of the key things that needs to happen is a brutal curbing of government expenditure. He added that Treasury will not allocate any additional money to fund the above-inflation wage increases that some have negotiated with trade unions. These increases will have to be funded by the individual departments themselves where this has been agreed. We will likely see the effects of the bludgeoning blow on the government’s bankroll at the local government level. Cue in a crisis in service delivery.

If departments take this seriously which,  if Mboweni puts his money where his mouth is they will have to, then we will see a hiring freeze and a slew of retrenchments of civil servants. The trend of protests and go-slows is likely to gain traction as a result. This is not going to be an easy reform to implement. Yet again this will impact on those areas where service delivery and resources are already at shamefully dismal levels — and where residents are seething and taking to the streets.

An alarming picture is painted when at 15:21, just one minute after the MTBPS was presented to parliament, the rand drops by 0.73% to R14.36 to the dollar, reversing gains made recently. This is an indication the market is disappointed with the announcement of higher than previously budgeted deficits in years ahead. For us this cements the fact that the fiscal challenges we are facing are not going to be overcome as quickly or easily as we may like. The next big challenge for the minister is to convince the ratings agencies that our sovereign ratings remain stable.

The country’s growth rate was predicted earlier this year by the then Minister of Finance, Malusi Gigaba, to be 1.5%. It has now been revised to a mere 0.7%. This is very close to a zero growth rate which would be dire and is likely to have a further negative impact on our already desperate unemployment rate of 27.2%. The unemployment rate continues to climb and with a low growth rate it means that the fiscus is able to raise less income.

The VAT increase to 15% has resulted in an 11% increase in income on the fiscus overall. There is a R27 billion shortfall relative to what was previously included in the budget presented by Gigaba in February this year. The problems at SARS are also now beginning to have a direct impact on the economy.  Twenty-billion rand of this shortfall is made-up of a backlog in VAT refunds. The balance of the shortfall is a result of lower income due to lower receipts in tax which has been driven by the technical recession we’re in. If anything should be keeping the minister awake at night it is this shortfall. It is critical that this doesn’t get any worse.

This was a difficult MTBPS as the minister forewarned.

To quote from his statement, “We can spend our money better. Too much money goes missing. We must restore good governance and fight corruption in all of its forms. Money that leaks out of the system is no longer available to support our efforts to reduce poverty and lighten the burden of the poor”.  South Africa is in trouble and the government must now do to itself what it has been doing to ordinary South Africans. It is time to cut their own spending or hurtle headlong into financial meltdown from which we may never recover.


© Spotlight.Africa 2018

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* The opinions expressed here by Spotlight.Africa contributors and editors are their own and not official statements of the Society of Jesus in South Africa or of the Catholic Church unless explicitly stated.

 

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‘A difficult time for ordinary South Africans’ as mid-term budget is released