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Medium Term Budget: Policy statement of despair

Finance Minister Tito Mboweni delivered his Medium-Term Budget speech on 28 October 2020, painting a sober picture of South Africa’s economic recovery prospects. Paulina French examines the key elements of the Minister’s speech and concludes that the government’s financial policy does not augur well for the country’s impoverished population.

During Minister of Finance Tito Mboweni’s Medium-Term Budget Speech on 28 October 2020, most South Africans waited to find some hope embedded in his speech. Hope, however, was in short supply as Mboweni warned us that drastic measures must be taken now for the country to emerge from its current dire economic situation.

These measures are likely to impact the entire population but, once again, the poorest in our society are likely to carry the biggest burden.  By June this year, the South African economy had shed 2.2 million jobs.  The country’s labour force totals 18.4 million of which only 14.1 million have jobs. The unemployed are likely to remain jobless with a projected growth rate of only 3.3% in 2021 and an average growth rate of 2.1% over the next three years.

Forecast for growth is weak

The lower growth rate also means a worsening shortfall in tax revenue, which is currently projected at R312 billion up from R304 billion in June 2020. The recently implemented tax increases did not add as much revenue to the fiscus as expected. Despite this, Mboweni warned that the government is looking at further tax increases of R5 billion in 2020/2021.

We cannot forget, however, that the devastation to the South African economy is not only due to the COVID- 19 pandemic.

In June this year, the Minister announced special adjustments to the February 2020 Budget to provide for an urgent healthcare response to the COVID-19 pandemic and financial relief to businesses and households.  We cannot forget, however, that the devastation to the South African economy is not only due to the COVID- 19 pandemic. The many years of revenue mismanagement and looting of fiscal funds has resulted in the dismal situation facing the country, which we and future generations will continue to pay for.

The Minister, during his mid-term budget address, conceded that government spending is currently too high and incorrectly focused on consumption spending rather than investment. This shift in thinking bodes well for the country going forward, but only if there is investment in assets that will render sound future returns.

Burgeoning debt eats away at revenue

The gross national debt has increased from 63.3% of GDP in 2019/2020 to 81.8% in the current financial year. Debt is growing and interest payments now make up 21 cents of every Rand of budget revenue. This means that for every Rand that government collects only 79c are available to be spent in the various government-funded sectors.

The country’s debt is expected to grow to R4 trillion in 2020/2021. The recent downgrades by the various credit agencies will also drive up the cost of debt. But the most sobering statement that the Minister made is: “Right now, government is borrowing at a rate of R2.1 billion per day”. The current fiscal situation can be compared to many household budgets — overindebted, poor and with limited or no savings at all.

Public sector wage freeze unlikely to eliminate inefficiencies

Mboweni was quite right when he said that the private sector has made great sacrifices. There are business owners who have not been able to take home a salary for the last six months so that they can pay their employees and keep their businesses afloat. There has been little evidence of this in the public sector. Instead, we have been exposed to more looting by public officials than ever before.

The public-service wage bill makes up a substantial portion of government spending and the real cost to the fiscus has risen by 51% since 2008. The budget statement indicates that – “Remuneration for employees of national and provincial governments tends to be higher than that of private sector workers.” 

To rectify this somewhat, the government plans to freeze the wages of public servants for the next three years. However, there is no mention of eliminating unnecessary positions and inefficiencies.  We cannot forget that public servants also include teachers, nurses, doctors and police who are the backbone of any prosperous and well-functioning society. This wage freeze will affect them too. The Minister also announced salary cuts for senior public servants.

The government plans to freeze the wages of public servants for the next three years. However, there is no mention of eliminating unnecessary positions and inefficiencies.

Implementing these measures will probably receive push back from public sector unions with further disruptions to service delivery and the inevitable destruction of public property.

Taking from crime-fighting and education to save SAA

And then the Minister dropped the bombshell.

Mboweni announced that R10.5 billion has been allocated to South African Airways to implement its business rescue plan. This required a readjustment of the budget that had been allocated to other sectors. The budget now makes provision for the reallocation of R1 billion from higher education and training and R1.2 billion from the police to save the national airline.

The government previously told us how important the fight against gender-based violence, corruption and violent crime are. The reallocation of money meant to fight crime contradicts the promise that President Ramaphosa made on 17 June when he declared that gender-based violence is South Africa’s second pandemic and needs to be eradicated. We are also told that the temporary social grants, which were introduced to help the poor through the economic effects of COVID-19, will stop as they are no longer affordable.

The government continues to be obsessed with keeping this insolvent airline in the air, even as the global aviation industry loses billions of dollars due to travel restrictions that have been imposed in response to COVID-19. Hours after the Minister delivered his speech, Germany and France announced second national lockdowns. These two countries are among South Africa’s major tourism markets and the poor demand for international or domestic air travel means that the national carrier cannot be expected to declare profits any time soon.

The government continues to be obsessed with keeping this insolvent airline in the air.

This R10.5 billion comes on the back of the R16.4 billion allocated by Treasury in February 2020 to repay historic debt. The question of whether government really is serious about curbing debt must be asked because it appears that the unmitigated disaster that is SAA continues to drive the economy into an ever-increasing debt trap.

Walking into the darkness

As always, the Minister makes reference to scripture to end off his speech, and this time, he quoted from John 12:35.

“You are going to have the light just a little while longer. Walk while you have the light, before darkness overtakes you. Whoever walks in the dark does not know where they are going.”

The looming darkness is the disastrous debt trap into which South Africa is precariously close to falling. Every Rand of this budget that is misspent will contribute to continued poverty and hardship, reflected in the lack of employment opportunities that most of our population faces.

A child born on 28 October 2020, the day that the Minister delivered this Medium Term Budget, stands little to no chance of a better life in this country if the proposed expenditure reductions are not implemented and the predicted growth rates do not materialise. The risk of this is higher than it has ever been.

* 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.