EXPLAINED | Nine things you should know about Tito Mboweni's budget

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Finance minister Tito Mboweni delivering his coronavirus emergency budget. (Parliament of SA)
Finance minister Tito Mboweni delivering his coronavirus emergency budget. (Parliament of SA)
  • Finance Minister Tito Mboweni presented a Supplementary Budget on Wednesday afternoon. 
  • Mboweni said the country is facing a sovereign debt crisis if spending isn't changed soon. 
  • Here are the nine key things you need to know about the budget. 

Finance Minister Tito Mboweni on Wednesday afternoon presented the Supplementary Budget for the 2020/21 financial year, which was necessary after the impact of Covid-19.

During his budget speech, Mboweni said the country is facing a sovereign debt crisis if spending isn't changed soon, and that debt to GDP will reach 106% by 2023 if nothing changes. 

He said his "Herculean" task is, therefore, "to close the mouth of the hippopotamus" by reducing expenditure and stabilising debt. 

The budget diverts additional money towards social grants and healthcare provision, in light of the pandemic.

A R3 billion bailout of the Land bank is also proposed.

No new taxes were introduced, but Mboweni said an additional R40 billion in tax will have to be found in the next four years. 

He said the Supplementary Budget also prepares the road for President Cyril Ramaphosa's goal to use the coronavirus pandemic to forge a new economy in a new global reality. 

Here are the nine key announcements from Mboweni's budget: 

South Africa's economy will contract by 7.2% in 2020 - the largest contraction in 90 years

Mboweni said South Africa's economy will contract by 7.2% in 2020, the largest contraction in nearly 90 years. The Supplementary Budget Review reveals that Treasury expects real GDP growth of 2.6% in 2021, and of only 1.5% in 2022 and 2023. 

Globally, Mboweni said Treasury has revised expected global economic growth down from a positive 3.3%, to a negative 5.2% in 2020. "This will bring about the broadest collapse in per capita incomes since 1870."

READ | 'Something disappeared from my speech’ The mystery over Mboweni’s pension fund announcement

Mboweni said South African inflation will likely remain at 3% in 2020, and local unemployment had reached 30.1% for the first three months of the year. 

"Commodity price increases and a weaker oil price have softened the blow - but, as a small, open economy reliant on exports, we have been hit hard by both the collapse in global demand and the restrictions to economic activity," Mboweni said. 

Treasury expects a R300 billion tax shortfall due to Covid-19 

Mboweni said SARS will miss tax collection targets by over R300 billion for the 2020/21 financial year. 

Mboweni said total tax revenue collected during the first two months of 2020/21 was R142 billion, compared to a forecast of R177.3 billion, and is therefore already R35.3 billion behind target.

MORE HERE | SA to miss tax target by over R300bn

As a consequence, total tax revenue for the 2020/21 fiscal year has been revised down from R1.43 trillion to R1.12 trillion. 

He said part of the government's R500 billion Covid-19 support package gives taxpayers outright relief of R26 billion, and delays in tax collection of approximately R44 billion. 

Mboweni said the projected total consolidated budget spending, including debt service costs, will exceed R2 trillion for the first time ever.

The budget deficit will be double what was expected in February 

Mboweni said, with the adjusted budget, South Africa will see a budget deficit of R761.7 billion, or 15.7 percent of GDP in 2020/21.

This is adjusted upwards from the expected deficit of R370.5 billion, or 6.8 percent of GDP projected in February. 

Mboweni said the increase is mainly due to the revised revenue projections and payouts from the Unemployment Insurance Fund.

He said, this year, out of every rand paid in tax, 21 cents goes to paying the interest on state debts.

"This indebtedness condemns us to ever higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth."

He said to make up for the shortfall, the state intends to borrow about $7 billion (roughly R121.1 billion) from international finance institutions, such as the African Development Bank and the International Monetary Fund (IMF). 

READ | ANC leadership supports talks with IMF for a loan - Mboweni

"We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back," Mboweni said. 

He said early projections indicate gross national debt will come close to R4 trillion, or 81.8 percent of GDP by the end of the 2020/21 financial year, compared to the estimated R3.56 trillion or 65.6 percent of GDP projected in February.

Healthcare receives an additional R21.5 billion spending for Covid-19 response 

Mboweni said the Supplementary Budget proposes R21.5 billion for Covid-19-related healthcare spending. It also proposes a further allocation of R12.6 billion to services at the frontline of our response to the pandemic. 

He said allocations have been informed by epidemiological modelling, a national health sector Covid-19 cost model and the country's experiences over the past 100 days.

"This money partly supports increased screening and testing, allowing us to open up more and more of the economy."

Mboweni said provinces will add at least R5 billion for the education catch-up plan, social welfare support for communities and provision of quarantine sites by Public Works departments and responses in other sectors.

He said tariffs have been agreed with private hospitals to supplement public sector capacity.

"The Solidarity Fund has augmented the government's efforts to procure medical and personal protective equipment," Mboweni said. 

An additional R25.5 billion for social grants, a further R19.6 billion for job creation 

Mboweni said that, to support vulnerable households, an additional allocation of R25.5 billion to the Department of Social Development is proposed, for a total relief package of R41 billion.

He said over 18 million South Africans have received a temporary Covid-19 grant and the rollout of the short-term Special Relief of Distress Grant will temporarily support an additional 1.5 million people without an income. 

He said all these measures will come to an end in October.

Mboweni said the economic support package sets aside R100 billion for a multiyear, comprehensive response to the country's jobs emergency.

He said, aside from the R6.1 billion already allocated for Ramaphosa's job creation and protection initiatives in the February budget, a further R19.6 billion has been set aside.

He said the president's job creation and protection initiative will be rolled out over the medium-term. It will include a repurposed public employment programme and a Presidential Youth Employment Intervention. 

National budget increases by over R30 billion, R40 billion extra tax required in four years 

Mboweni said the national share for 2020/21 budget increases from R758 billion to R790 billion, the provincial share decreases from R649 billion to R645 billion, and the local government share increases from R133 billion to R140 billion.

Local governments would, therefore, receive an additional R11 billion. Mboweni said a further R9 billion will be reprioritised within allocated conditional grants to fund additional water and sanitation provision, and the sanitisation of public transport.

He said municipalities will adjust their budgets to take into account the sharp decline in revenue as a result of the pandemic. 

READ | Mboweni squeezes out more money for municipalities to fight Covid

"We urge communities to hold councils accountable for the spending of Covid-19 funds."

Mboweni said spending adjustments of about R230 billion is required over the next two years, and additional tax measures of R40 billion over the next four years will also be required.

However, no new taxes are planned for this year. 

"The government will announce details to these tax proposals in the 2021 Budget." 

If nothing is done, South Africa's debt will reach 106% of GDP in 2023/24 

Mboweni said the state will aim to narrow the deficit and stabilise debt at 87.4% of GDP in 2023/24. He said the Cabinet has also adopted a target of a primary surplus by 2023/24.

"This is about the same time that our Aloe Ferox will flower for the first time. As any farmer will tell you - patience and focus are required," he said, referring to the Aloe he first brought to his budget speech in 2019. 

ALSO READ | Supplementary budget: It’s all about stabilising SA’s debt, says Mboweni

However, the budget speech review reveals that Treasury expects South Africa's debt to reach over 106% in 2023/24 - if nothing is done to address spending. 

Mboweni said if South Africa doesn't change its spending patterns soon, it will see a sovereign debt crisis, where it is no longer able to pay back the interest on its borrowings. 

He said even as South Africa responds to the current health and economic crisis, a fiscal reckoning looms.

"The public finances are dangerously overstretched."

Mboweni said, if the state remains passive, economic growth will stagnate.

"Our debt will spiral inexorably upwards and debt-service costs will crowd out public spending on education and other policy priorities."

The country already spends as much on debt-service costs as we do on health in this financial year, he said.

"Eventually, the gains of the democratic era would be lost."

Bailout of R3 billion for Land Bank, and delay on economic reforms 

Mboweni said the state will also allocate R3 billion to recapitalise the Land Bank, which holds 29 % of South Africa's agricultural debt. He said details on this recapitalisation are provided in the Supplementary Budget Review.

No other State Owned Enterprises (SEOs) will receive bailouts, including the embattled South African Airways (SAA). The Supplementary Budget Review said the state should reconsider SEOs and whether they still contribute to the goals of the state. 

Mboweni said some reform measures from Treasury's paper "Towards an Economic Strategy for South Africa", adopted by Cabinet, have been delayed by the virus. 

He said Deputy Minister of Finance David Masondo will coordinate the implementation of reforms as the head of the Vulindlela office.

One of these is to shift away from the country's current electricity supply system.

He said progress on the other reforms will be given in the Medium Term Budget Policy Statement (MTBPS). 

Mboweni said Public Service and Administration Minister Senzo Mchunu will be negotiating with partners in the labour movement to find a balanced solution to the country's high salary costs. 

South Africa needs private money to fund infrastructure growth 

Mboweni said to get South Africa's economy growing, more money will have to be spent on infrastructure, such as roads, bridges, railways and ports.  

He said the country's efforts to reduce consumption expenditure will also change the composition of spending in the direction of investment.

"Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs."

He said the state has already committed R100 billion over 10 years towards the Infrastructure Fund. 

In light of the Sustainable Infrastructure Development Symposium on Tuesday, where 177 infrastructure projects across public and private sector were considered, Mboweni said these projects will be funded through the Budget Facility for Infrastructure.

"But our enormous investment needs cannot be delivered by the government alone. The private sector accounts for most of the investment spending in the economy," he said. 

"We must reduce long-term interest rates to allow business and households to drive faster economic growth."

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