South Africa

Lockdown impact 

Alcohol and tobacco ban costs SA’s collapsing economy an additional R1.7bn

North of R1.7bn has been lost in sin tax revenue over 29 days in April from the hard Covid-19 lockdown ban on alcohol and tobacco, Parliament’s finance and appropriation committees heard on Thursday.

Finance Minister Tito Mboweni sounded tired, but perhaps that was just the crackly videoconferencing line. He told lawmakers he had lost the battle in Cabinet to secure revenue income during these difficult times as South Africa further slides into recession.

“I didn’t like the ban on alcohol and tobacco. I lost the debate in Cabinet and therefore I must toe the line. I lose a lot of revenue in the middle of pressure to spend, but that’s a decision of the Cabinet and I have to fall in line… I must do so [toe the line], otherwise I must leave the Cabinet.”

Mboweni’s comments came after South African Revenue Service (SARS) Commissioner Edward Kieswetter expressed concern over the “significant impact” of the Covid-19 lockdown.

April was the first complete month of the hard lockdown, and, excluding 30 April, during the month Sars under-recovered R664-million on beer sales, almost R300-million on wine sales, R400-million on spirits and R400-million on cigarettes.

“When legal sales are not permitted it encourages the trade in the illegal economy and that is a concern we want to share with the committee.”

  

Time was not given to interrogate these figures, or others – like South Africa’s public purse losing one in every three rand in tax revenue due to lockdown economic shocks, or job losses now anticipated at between three to seven million – in Thursday’s joint meeting of five committees. The committees were: the finance and appropriation committees of the National Assembly and the National Council of Provinces (NCOP), plus the public spending watchdog, the Standing Committee on Public Accounts (Scopa).

“We expect revenue to come down 32% or more,” said Mboweni. National Treasury’s modelling shows the best scenario expects a 27% decline in income from production, income, sales and other taxes.

And so the only way to balance the drop in income and spending pressure was “borrowing and removing any whistles and bells”.

That meant dropping any ideological debates to approach the International Monetary Fund (IMF) – around $4.2-billion is sought – and the World Bank, which is earmarked for $50-million.

“We haven’t begun any negotiations, it’s a long process that takes weeks,” the finance minister said about any IMF loan. “I am not interested in conditionalities discussions.”

But the prospects of securing an interest-free loan are minimal to non-existent. And, like discussions with international financial institutions, including the BRICS New Development Bank, none of it is finalised.

Not even the R130-billion of reallocated existing government funding that was just about the only actual real cash in the R500-billion recovery package President Cyril Ramaphosa announced on 21 April. The other measures are keeping money in businesses and individuals’ pockets by deferring tax payments, also counted in a R200-billion loan guarantee scheme.

On Thursday, National Treasury Director-General Dondo Mogajane told parliamentarians that discussions to finalise these measures internally across government savings are ongoing. Of the R130-billion in reallocated funding, R100-billion comes from the national government and the rest from provinces.

“Some of the details, we have not finalised them. The inclusivity of the Budget process means the departments and provinces need to be fully engaged,” said Mogajane, adding that a meeting with finance MECs had been held only a day earlier, on Wednesday. 

“All of these things are loose balls that are hanging for good reasons….”

National Treasury has the estimates and is working through these, according to the DG: “The revised Budget will come and at that point details will be finalised.”

But exactly when that revised, or supplementary, Budget will come remains unclear. Yet, the need for a new Budget because the Covid-19 lockdown blew February’s one to bits goes back to 14 April when Mboweni first acknowledged this.

The date of this remains wide open. And the pressure is on.

On the parliamentary calendar, May and June are the Budget months, from briefings to MPs on annual strategic and performance plans by departments and entities to Budget votes. The deadline for the Budget to be passed is the end of June.

The Covid-19 hard lockdown has thrown the parliamentary calendar off-kilter. For example, the ongoing ban on interprovincial travel means MPs would not be able to travel to Cape Town for sittings. Plans are underway, although still uncertain, for virtual sittings of the 400-strong National Assembly.

 

Right now, in an already struggling economy, sectors like tyre and rubber products, accommodation, rental, tourism, and nonmetallic minerals like cement are set to decline by more than 60%. Mining and quarrying, transport, storage, and educational services are expected to decline by between 30% and 60%.

 

For government departments, the financial allocation rejig is creating problems of a different kind.

Parliamentarians were told the appropriation rules stipulate that until a new Budget is passed, spending is limited to a maximum of 45% of last year’s expenditure. Five small departments have already done so, including the Government Communication and Information System (GCIS). Deviations are in the making.

According to its briefing documents, National Treasury wants Parliament to still pass the 2020 Budget by the end-of-June deadline, in which case a new 2020 Budget, adjusted for the impact of Covid-19, would be ready in July.

“We have a target. We will approach Parliament. Not in October. We will have to bring that much, much earlier,” said Mogajane on Thursday.

For National Treasury and its political boss, Mboweni, this is a headache. Much of the impact of the Covid-19 pandemic and lockdown seems a moving target.

Right now, in an already struggling economy, sectors like tyre and rubber products, accommodation, rental, tourism, and nonmetallic minerals like cement are set to decline by more than 60%. Mining and quarrying, transport, storage, and educational services are expected to decline by between 30% and 60%.

These declines contribute not only to the revenue crunch, but job losses. Previous estimates hovered around the one million mark.

DA MP Geordin Hill-Lewis said, “No leader or policymaker in South Africa can possibly be comfortable with such a high human cost to the lockdown.”

Action was needed now to avert these job losses, but was difficult as Level 4 lockdown was insufficiently different from the initial hard lockdown. 

Said Hill-Lewis: “The government’s model is a blunt instrument that picks winning and losing industries, without any apparent justification in transparent and available health data.” 

National Treasury is looking at an 18-month window for South Africa’s economy to revive in any meaningful way.

Over the next six months, the aim is to “preserve the economy” as National Treasury’s “Economic Measures for Covid-19” document puts it, with a focus on increased health spending to save lives, support vulnerable households and restarting the economy.

After that, the following six months to May 2021, dubbed “Phase 2: Recover”, would see support for investment and employment: 

“Economic focus shifts towards spurring activity to bolster the recovery, as restrictions on domestic recovery ease…”

Only thereafter, in “Phase 3: Pivot”, could South Africa’s economy be directed towards faster growth and “return the public finances to a path of fiscal sustainability”.

It’s a long haul. With many moving parts, and what the government likes to call “unintended consequences”.  And much uncertainty. DM

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