Will Tito’s aloe survive the Covid-19 pandemic?

Finance Minister Tito Mboweni.
Finance Minister Tito Mboweni.
survival of the fittest

No one knows how Tito Mboweni’s beloved aloe plant is doing – but hopefully it won’t have died by the time he releases the new Covid-19 coronavirus emergency budget at the end of June.

Mboweni has taken the plant to Parliament three times, using it as a metaphor for the country’s financial situation. In February last year, he said the aloe ferox was lightweight, hardy and drought resistant.

In October last year, when the fiscal situation worsened, Mboweni said the plant had a long, difficult winter behind it. In February this year, the message was that everything needed to be done to help the plant reach its full growth potential.

But that was before the Covid-19 blight struck.

Maarten Ackerman, chief economist at Citadel, said the adjusted emergency budget would probably be presented on June 24 and would probably replace the February budget, which was now out of date.

Some had questioned whether Mboweni had not taken too long to release the emergency budget.

But Delia Ndlovu, managing director of Deloitte Africa Tax, and Billy Joubert, director of transfer pricing, said that, given the unprecedented scale of the worldwide Covid-19 pandemic, it was of great importance that the government got the budget right.

In October last year, when the fiscal situation worsened, Mboweni said the plant had a long, difficult winter behind it. In February this year, the message was that everything needed to be done to help the plant reach its full growth potential
Riana De Lange

“Mboweni and Treasury’s challenge is to balance the needs for proper consideration and consultation with the public’s urgent need to know what the plan is,” said Ackerman. “The country can’t afford to get the plan wrong and, therefore, its development should take as long as is needed, within limits.”

Ackerman said it was important for the minister to take some time planning the budget because the country had a better picture now than it did at the end of March.

He said Mboweni had to sketch a new plan for fiscal growth, how the budget deficit would be supplemented, the country’s debt situation and how the R500 billion stimulus package would be financed.

One of the major differences between now and February was that Treasury had expected a 1.3% economic growth for the year in February.

But as a result of the Covid-19 pandemic, the country had to prepare for an economic contraction of up to 7%, the SA Reserve Bank said this week.

Will Tito’s aloe make it?
Will Tito’s aloe make it?

Such poor figures would have a significant impact on government’s revenue streams, said Ackerman.

Ndlovu and Joubert said it was tough to know where the government would find additional tax revenue.

Mboweni surprised South Africa in February by announcing tax relief of R2 billion in respect of personal income tax.

This was an indication that the government accepted that higher taxes were not the answer to the country’s problems, they said.

“Tax increases are unlikely but if that happens it will probably be a once-off, such as a once-off levy that wealthy individuals have to pay.”

Deloitte said there was no room to increase company tax or VAT and the government was already losing a valuable source of income in the form of customs and excise, as well as VAT, as a result of the ban on alcohol and tobacco sales.

Sanisha Packirisamy, an economist at Momentum Investments, was hopeful that Mboweni’s emergency budget would give further details about how phase three of the government’s stimulus package would be positioned.

She said Mboweni would need to provide concrete plans about how the high debt burden would be managed and what would be done about the increase in bankruptcies and the number of people who were unemployed.

Annabel Bishop, an economist at Investec, said the domestic collapse of GDP activity, job losses, companies permanently closing their doors and income losses for many would not be softened by the government’s fiscal stimulus package.

South Africa would inevitably have to borrow more money, which would mean that interest payments would increase and more money would have to be budgeted for that, instead of going to other important priorities
Maarten Ackerman, chief economist at Citadel

“The tax base will shrink significantly this year and the budget deficit could increase by up to 15% of GDP. It will in all likelihood remain in double figures for the next two years,” Bishop said.

Ackerman said Mboweni would have to show how he was going to fill the gap – whether through higher taxes, issuing more state bonds or loans.

South Africa would inevitably have to borrow more money, which would mean that interest payments would increase and more money would have to be budgeted for that, instead of going to other important priorities, said Ackerman.

However, there had been little sign of cutting government expenditure, Bishop said. Although there would obviously be savings on travel expenses and money could be saved by limiting salary increases in the public service to under inflation, it would not make up for expenses related to Covid-19.

“At this point the private sector is taking the pain. For example, look at Comair and Edcon, both of which have applied for business rescue. The 20 000 job opportunities that were lost in April were in the private sector and not as a result of cuts in the public service,” she said.


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