It was a case of difficult times, difficult choices, according to the MTBPS documentation: tax collection is down by a projected R50.8-billion – noted as “the largest ever under-collection” since 2009 and this is significantly more than economists had speculated – and in these economically troubled times “there is little space for tax increases”. Although on intervention on the tax front could be cutting down on medical aid tax credits, caution remains: “Additional tax proposals need to be carefully considered in light of overall pressures in the economy and the fiscus…”

Yet tens of billions of rand are needed from the national purse, largely because of State-owned Entities’ (SOEs) dire financial and governance records. The demands on the fiscus include:

R13.7-billion “to forestall calls against (government) guaranteed debt by the creditors of South African Airways and the South African Post Office”;

R5.2-billion in bailouts given to SAA between end of June and September under the so-called emergency provision of Section 16 of the Public Finance Management Act (PFMA) must be defrayed against the National Revenue Fund;

R1.5-billion in so-called self-financing expenditure, most of which is for the Home Affairs passport programme; and

R586-million in the Water and Sanitation Department’s “unforeseen” expenditure since February’s Budget, largely on emergency water supply at Butterworth, Eastern Cape, and capacity upgrading of the Thukela Goedertrouw water supply.

Pressures due to SOEs’ financial and governance troubles remain going forward. “There are risks that if SAA’s financial fortunes do not improve, there will be further calls on the remaining guarantees (totalling R19.1-billion),” according to the MTBPS documentation. And Eskom is also unstable, given that it has R350-billion government guarantees. “There are also risks that sales growth will perform below projections, or decline as households and businesses improve their energy efficiency. If this happens, Eskom will likely apply for even steeper tariff increases.”

Gigaba FullMTBPS 

Other SOEs’ dilemmas also impact. The South African National Roads Agency Limited (Sanral) is in financial troubles. “If government does not proceed with tolling to fund major freeways, difficult trade-offs will need to be made to avoid a deterioration in the national road network,” said the MTBPS. Denel needs refinancing to avoid defaulting on repayments of a R1.85-billion government-guaranteed loan.

A further risk factor is an increased public wage bill: current labour demands range from 10% to 12% hikes. The Budget shortfall would “deteriorate substantially” if these public service wage talks led to an agreement that exceeded inflation, that in August stood at 4.8%. A settlement of inflation plus 1% for the around 1.2-million public servants would raise the national shortfall in 2018/19 by R8.2-billion.

With economic growth forecast at a reduced 0.7%, down from just over 1% since the start of the year, and cost saving on consultants, travel, catering and the like hitting its boundaries, there has been little room to manoeuvre.

“This year, a sharp deterioration in revenue collection and further downward revisions to economic growth projections have significantly eroded government’s fiscal position,” the MTBPS said. And while the short-term measures announced on Wednesday centre around increased borrowing, the MTBPS is also blunt that this is not without consequences: “Debt-service costs are the fastest growing category of expenditure, crowding out social and economic spending. By 2010/21 (financial year) nearly 15% of main budget will be spent on servicing debt.”

The MTBPs documentation outlines, aside from increased government borrowing, the shifting of departmental underspending, a cut of R1.67-billion in anticipation of underspending, a reduction of the R6-billion contingency fund which is available for disaster relief and emergency. On paper, at least some R14-billion could be saved, through recalculation of South Africa’s contributions to the Southern African Customs Union.

Only in Finance Minister Malusi Gigaba’s speech in the House did it emerge that government would sell “a portion” of its almost 40% stake in Telkom to raise money for SOE bailouts.

It’s not enough, hence the borrowing increase. But that holds its own challenges. “Concerns about policy and political uncertainty, along with weak domestic demand, weigh heavily on business and consumer confidence, deterring investment and job creation,” according to the MTBPS.

It’s a frank assessment, amid efforts to counter this gloomy outlook by what is called “confidence boosting measures”. Few if any are new. They include the appointment of a SAA board, and permanent CEO for the first time in years, as the start of returning the national airline to financial and governance health. Also included are the legislative and regulatory measures to boost procurement as part of initiatives to kick-start greater economic growth. In addition, the theme running through the MTBPS is that of maintaining expenditure ceilings and fiscal prudence.

In this context, the MTBPS did not signal clear steps to deal with upcoming pressures on the national purse, be that the National Health Insurance (NHI), aimed a making quality health care accessible to all beyond the 16% of South Africans on medical aid, or free higher education.

Full implementation of the NHI would increase public health expenditure to 6.8% of GDP in 2015/26. Amid the mooted higher education reforms, National Treasury modelling shows that providing financial aid for the full cost of study to just 75% of undergraduate students would push up post-school spending to 4.1% of GDP by 2030/31.

MTBPS 2017 talks of decisive action for a new economy growth trajectory, including a new set of measures to stimulate the economy like broadband spectrum licensing, optimising government assets, and encouraging private sector participation.

But unless the haemorrhaging of billions of rand from SOEs, mired in governance and financial mismanagement and inefficiencies, is stopped, next year’s Budget may be an even more bitter pill. DM

File photo: Minister Malusi Gigaba. Photo: Kopano Tlape/GCIS