Mboweni set to table ‘the toughest budget since 1994’

The 2020 Budget Speech would be the toughest since 1994 as Finance Minister Tito Mboweni has to find means to reduce the country’s high debt levels, economists say.

Mboweni is expected on 26 February to table the budget speech for the 2020/21 financial year in parliament.

But urgent economic reforms are required to grow the country’s economy to a level equal to that of population growth. This year would mark the sixth consecutive year that the country’s gross domestic product (GDP) declines due to the growing population rate, PricewaterhouseCoopers’ (PWC) chief economist Lullu Krugel said.

Speaking at a panel discussion on the budget review in Johannesburg yesterday, experts from the auditing firm predict another low 0.6% GDP growth in the coming financial year as opposed to the predicted 1.2% growth by the South African Reserve Bank (SARB).

Factors such as load shedding and the recent global coronavirus outbreak could play a part.

“We think it would be unbelievable if National Treasury comes with anything higher than the Reserve Bank’s number…In the 1.2% that SARB put forward, they say they have factored in [the effects] of load shedding. We have also factored that in when we came to the number [of 0.6%],” Krugel said.

Due to the country’s weak employment growth, only 20% of the adult population contributed to personal income tax, which is the largest source of tax revenue.

Head of tax policy at PWC, Kyle Mandy, expect tax revenue to be between R57 billion and R65 billion lower than the 2019 budget estimate – between R4.5 billion and R12.5 billion lower than the revised estimate in the medium term budget policy statement (MTBPS).

“The situation has deteriorated since the MTBPS. Based on the December budget, that number could be higher and we are looking at a significant downsize risk. Revenue collection has deteriorated over the last few months. It could potentially reach R20 billion,” Mandy said.

For a more positive fiscal, Mboweni would need to prioritise reducing expenditure or redirecting it from areas that show no growth.

This could be in the form of cutting expenditure on the government wage bill, Krugel said.

“A strong message and action on curbing staffing costs is needed to increase confidence in the government’s ability to improve the fiscal situation.

“[The Minister] should identify expenditure that can drive economic growth. We will have to look at the government wage bill, which could be a very unpopular decision. I think he has the will but I am not sure he has the support to do that,” she said.

Mboweni had last year slammed former cabinet ministers for signing agreements on the wage bill, which would cost R600 billion of annual spending. He had said by the time the budget speech is tabled, discussions with labour on slashing the wage bill would be finalised.

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