Budget Speech: Will govt use windfall to boost SA or repay loans?

This country is broke and, in financial terms, it is not a going concern because its liabilities and expenditure exceed its income.

So, on Wednesday, Minister of Finance Enoch Godongwana will have to further finance the budget deficit, which means more borrowing. However, our borrowings are already gigantic. The annual interest alone on our local and international debt is R200 billion.

That amount would:

• Buy 40 billion pancakes at a cost of R5 each from a supermarket kiosk;
• Put 2.6 million South Africans into an RDP house, at a cost of R75 000 per building;
• Enable you to buy 250 000 Ford Ranger double-cab bakkies, at R800 000 each and then park them nose to tail in a 1 250km long line which would stretch from Joburg to Cape Town; and
• Be enough to give each of South Africa’s 12 million registered vehicles more than 16 full tanks of fuel.

Adding in the recent World bank borrowing and last years international Monetary Fund loan, South Africa owes the world around R4.2 trillion.

Last July, President Cyril Ramaphosa admitted that R1.5 trillion has been lost to corruption since 2016.

Without that loss, SA’s debt could possibly have been R2.6 trillion.

There are five things every South African knows about the annual budget. Cigarettes and booze will cost more, there’ll be another petrol levy increase, state-owned companies will get bailed out and Covid will be a scapegoat for something.

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Economist Dawie Roodt expects tobacco and alcohol to get slapped with at least 7 to 8% additional sin tax while petrol will hit an all time high as a combination of the rising cost of oil and yet another new levy, or an increase in what’s already being clawed in by government.

“Taxing cigarettes more will further fuel the illicit tobacco trade that enjoyed significant growth during lockdown.” In turn, revenue from tobacco might not see the spike that Treasury would have hoped for.

“We will also see petrol approach around R22 a litre after at least a R1.50 per litre tax hike.” Roodt expected that as much as R200 billion might be wiped off the national balance sheet in interest payments.

And that’s if the rand remains stable. At current crude prices, South Africans should be paying far less to fill up, with taxes presently making up more than R7 of the pump price per litre. Government rakes in about R126 billion from fuel levies every year.

That’s R74 billion less than the annual interest on debt that South Africa must service. Petrol, which fuels the economy, could have been cheaper. Income tax will be adjusted in terms of inflation and value-added tax was too politically sensitive to increase, he added.

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Roodt expected revenue collection to enjoy an unexpected windfall with around R200 billion added to the country’s bottom line. This was due to global demand increases for metals and resources. But this may come in the front door and go out the back as it equals a debt interest instalment.

He believed that SA might have already passed the point of no return.

“It’s a slow decay, not the kind of end that driving into a brick wall may cause. But if South Africa does not segue off its current path, it’s disaster that lies ahead.

“Foreign debt hovers around 70% of GDP and in state-owned companies it jumps to 80%.”

Monde Ndlovu of the Black Management Forum cited developed markets whose debt levels exceed 100% of GDP.

“The fiscal cliff is really about the quality of leaders who handle the resources of the country, more than the debt levels themselves.

“The difference between developed countries and South Africa is that they know exactly how to utilise their resources. There are clear programmes of action and clear consequences.”