Tito Mboweni’s dilemma: To cut or pump more money into economy in medium-term budget?

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Finance Minister Tito Mboweni
Finance Minister Tito Mboweni

The Medium-Term Budget Policy Statement (MTBPS), set to be tabled in Parliament on Wednesday, is said to be the most crucial policy statement in the country’s history.

Analysts say the policy statement will highlight the urgent need for the implementation of critical economic reforms that can no longer be delayed. However, analysts’ sentiment differ on whether the country needs fiscal consolidation – which means budget cuts – or an expansionary fiscal policy where government puts more money into the economy.

Finance Minister Tito Mboweni will deliver his statement against the backdrop of an unprecedented drop in the 2020/21 tax revenue compared to the previous budget. The SA Revenue Service (SARS) commissioner Edward Kieswetter said South Africa faced a R300 billion under recovery for the 2020/21 financial year as a result of the country’s shrinking tax revenue.

Read: Mboweni requests postponement of mini budget speech

Kieswetter said the revenue challenges were a result of the country’s structural issues, taxpayer compliance levels, the unintended consequences of the Covid-19 lockdown and low public confidence levels.

SA Revenue Service Commissioner Edward Kieswetter
SA Revenue Service Commissioner Edward Kieswetter. Picture: Gallo Images/Business Day/Freddy Mavunda

Nedbank economist Busisiwe Radebe said that fiscal numbers that will be shared in the MTBPS are unlikely to deviate too far from the numbers published by the National Treasury at the tabling of the supplementary budget in June.

Radebe said taxes collected – as well as money spent so far, as a percentage of the revised budgeted figures published in the supplementary budget – are comparable to figures released at the same time last year.

According to Nedbank, R404.5 billion in tax revenue has been collected from April to August this year compared with R509.7 billion to the same period last year. The Nedbank report states that a similar trend can be seen with expenditure, with 40.2% of the budgeted amount been spent compared with 41.4% over the same period last year.

Radebe said the poor fiscal position that South Africa finds itself in is mainly due to years of not undertaking the reforms required to place the country on a path to higher growth. She said this was exacerbated by the coronavirus pandemic which necessitated the shutting down of much of the economy earlier this year.

Kieswetter said the revenue challenges were a result of the country’s structural issues, taxpayer compliance levels, the unintended consequences of the Covid-19 lockdown and low public confidence levels

City Press spoke to Miyelani Holeni, group chief adviser at Ntiyiso Consulting, who said Mboweni’s budget needs to show a commitment to increasing spending.

“It looks like government is not increasing its spending in the economy and this is a concern. At this stage, if the government pulls back, it will be difficult to expect the private sector to commit,” Holeni said.

He said the fact that government was able to find funding to cover the extremely high jobs losses through large scale retrenchments caused by the Covid-19 pandemic crisis, it should do something similar to build the economy.

“We know there are Setas [Sector Education and Training Authority] sitting with money and there is also money sitting in pension funds. This money should be used to fund capital projects. There needs to be a greater pulling of funds in the same way monies were pulled from the UIF [unemployment insurance fund] to supplement the job crisis,” he said.

Holeni said the zero-based budget introduced in June should be reinstated and not become lost within the system.

The June supplementary budget set out plans to combat the devastating impact of Covid-19 on South Africa’s already ailing economy, including policy reform, zero-based budgeting, expenditure cutbacks and wage bill savings. Assurances were made by the Treasury that details on these plans would be announced at the MTBPS on Wednesday.

Read: Supplementary budget: It’s all about stabilising SA’s debt, says Mboweni

Contrary to Holeni’s expansionary budget talk, Old Mutual Investment Group chief economist Johann Els, said government’s absolute commitment to the fiscal consolidation would stabilise the debt ratio.

“Efforts to contain government spending over the last few years are commendable, but these could not keep up with the impact of weak growth on tax revenues, the deficit and the debt ratio,” he said.

Els said fiscal consolidation along the lines of the June supplementary budget, the easing of Covid-19 infection rates and the lockdown, progress concerning Eskom and its unbundling, the opening up of energy markets, successful maintenance programmes and significant reduction of load shedding by late next year, and the fight against corruption, would help lift confidence and economic growth.

He called for structural policy change to enhance the growth trajectory over the next few years to be accelerated.

However, state-owned enterprises remain a major concern. City Press reported last week that SAA, the Covid-19 grant extensions and civil servants’ demands were some of the reasons the mid-term budget was pushed back by a week.

City Press spoke to Miyelani Holeni, group chief adviser at Ntiyiso Consulting, who said Mboweni’s budget needs to show a commitment to increasing spending

City Press reported that government wants to secure R10 billion to fund the airline’s business rescue plan inside the treasury. At the time, the Treasury indicated there is no more money available, but government has committed to finding the funds for the airline.

Business Leadership SA CEO Busi Mavuso called the attempt to rescue SAA “a waste of money”.

“Government is attempting to find money to resuscitate SAA. At least R10.4 billion is committed to the airline to cover the costs it has already incurred while in business rescue, but the objective is to find a whole lot more to finance the reopening of the airline. This is a waste of money.

“SAA delivers no social services or economic benefits that can’t be better done by a competitive airline industry. It is the most obvious place to make savings,” said Mavuso.

Read: Mboweni says SA has not committed to fund SAA rescue plan

Holeni told City Press that while everyone speaks of bailing out state-owned enterprises, government seems to have forgotten the municipalities. “The municipality revenue model does not work. This is the next crisis,” he said.

Holeni said there was a massive gap when it comes to the funding of municipalities.

“The assumptions put in place when local government was established was at least 90% of their revenue will be self-generated from selling electricity, water and from rates and taxes as well as property taxes.

But this has not materialised. However, we have continued with the same formula of allocating funding into local government.

This is an aspect that needs be changed so that local government can have a fighting chance to be more sustainable,” Holeni said.

“The citizens are under strain. Businesses are under strain. There is no movement and no growth for municipalities. Debt has increased. Default rates have increased so payment rates are forever going low. Some citizens and businesses are insolvent so we need to look at how funding can be changed and an exception can be made for the next five years.

City Press reported that government wants to secure R10 billion to fund the airline’s business rescue plan inside the treasury. At the time, the Treasury indicated there is no more money available, but government has committed to finding the funds for the airline

“And instead of committing 9% of revenue to local government, push it to 25% and cut money from the provinces and the national because that is salaries of technocrats,” said Holeni.

He said money pushed to local government would facilitate economic activity. Economic infrastructure projects must be identified and the funding of contractors must be prioritised so they may deliver on their projects on time.

“When we build the economy, we should do it from the bottom up, not the top down, because there are many leakages within the system. So the district model is one such model that should be a vehicle to facilitate the development at a local level,” he said.


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