Finance Minister Enoch Godongwana tabling his maiden Medium-Term Budget Policy Statement (MTBPS) in the National Assembly. Picture: @TreasuryRSA/Twitter
The 2021 Medium-Term Budget Policy Statement (MTBPS) brought some “tough love”, economic reform and growth from Minister of Finance Enoch Godongwana, but also some much-needed spending where it is needed.
This means more money for Sasria, the defence force, police, public-sector wages and higher education, but none for state-owned companies.
Medium-term spending plans will be focused on service delivery over the next three years, with consolidated government spending expected to increase from R2.1 trillion to R2.24 trillion over three years, which means that government will spend more than R6.4 trillion over the next three years.
These are the most important factors of concern that Godongwana addressed in the MTBPS:
An additional R11 billion will be made available to the South African Special Risk Insurance Association (Sasria) to enable the institution to continue settling legitimate claims from businesses damaged during the unrest in July.
To further strengthen the fight against crime, the South African National Defence Force and the Police Services will get additional funding.
Aside from allocations included in the Special Appropriation Bill tabled in August, most of the adjustments of R20.5 billion are meant for the higher-than-budgeted public sector wage agreement.
Godongwana said the huge unemployment challenge we face as a country is a major concern for government.
“South Africa continues to grapple with long-run unemployment and in the current conditions, unemployment is lagging the economic recovery.” He said that the 2022 Budget will allocate almost R74 billion for public employment programmes.
Government will also continue supporting fee-free higher education. The R44.7 billion spent on this has been increased to R56.8 billion in the current year.
With the current social relief of distress (SRD) grant coming to an end in March 2022 that benefitted about 9.5 million people, Godongwana said that the February 2022 budget will provide details on government interventions regarding the social security net.
He acknowledged that while state-owned companies are intended to be important enablers of economic development, many have been badly managed and have failed to deliver and many have also been devastated by state capture, making them increasingly reliant on government support.
This time there will be no additional funding for state-owned companies. Godongwana also reiterated that we must be prepared to consolidate some of our state-owned entities and let go of those that are no longer considered strategically relevant.
Godongwana said government is proposing measures to boost household savings by increasing preservation before retirement and increase flexibility through partial access to retirement funds through a “two-pot” system that will give individuals access to contributions from one pot, while contributions to the other pot would be saved until retirement.
National Treasury will shortly publish a discussion document on the details of this proposal to obtain inputs before further announcements are made in the 2022 Budget Speech.
Godongwana said taxes paid by the mining sector had been strong, due to the commodity price rally which continued through the first half of 2021, but precious metal prices have started to soften. This means the revenue gains from the commodity price rally are expected to be temporary and therefore, we should be careful about our spending commitments.
“We should not make permanent spending commitments from short-term revenue benefits. This approach is embedded in our fiscal framework. We are of the view that revenue can be increased with a more effective and efficient revenue collection authority.”
The additional revenue created space for government to provide additional support for poverty and employment programmes this year, without negatively impacting the fiscal position, Godongwana said. Government has provided an additional R48.9 billion in fiscal support due to the unrest that took place in July and the impact of the Covid-19 lockdown.
The South African Revenue Service (Sars) has already started to use the additional funding from the previous budget to hire skilled tax and customs auditors and data scientists to boost compliance and collections as well as accelerate modernisation.
Godongwana lamented that government tried to fix Eskom over the past 13 years instead of addressing security of supply by adding additional capacity to the grid.
However, he said government has made significant progress in correcting this by amending schedule 2 of the Electricity Regulation Act to raise the licensing threshold from 1 to 100MW and making it possible for private power generators to sell directly to customers.
Instead of getting higher growth from fiscal expansion, the country’s debt continued to rise, the minister said.
“The R4 trillion in debt that we now owe is incurring debt service costs that will become the largest portion of spending, compared to individual functions, from next year.
“We cannot avoid paying them and therefore they will crowd out other spending priorities. Debt-service costs are expected to rise from R269.2 billion in 2021-2022 to R365.8 billion in 2024-2025, which is higher than the health and police services budgets.”
He said there were nevertheless some positive developments on the fiscal side, such as tax collections that have exceeded expectations in the short-term. Revenue for 2021-2022 is now estimated to reach R1.5 trillion, compared to R1.4 trillion at the time of the 2021 Budget Speech in February, an upward revision of R120.3 billion.
The consolidated budget deficit is expected to be 7.8% of GDP in 2021-2022, gradually lowering to 4.9% in 2024-2025.
After introducing a Loan Guarantee Scheme early last year which enabled commercial banks to support firms in distress as a result of the Covid-19 crisis, this programme has been concluded. Government is considering new small business support measures to enable affected businesses to bounce back.
“Equally important is the faster implementation of structural reforms to unlock greater private sector investment, economic growth and job creation. A fast-growing economy will allow for greater revenue collection, making it possible for more comprehensive responses to the challenges we face.”
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