MEDIUM-TERM BUDGET POLICY STATEMENT
More tax to come, but no SOE bailouts, as Godongwana juggles public finances to extend R350 grant
Enoch Godongwana’s MTBPS highlighted tax hikes tempered by an extension to the Social Relief of Distress grant.
With South Africa’s debt service costs now the fastest-growing public finance expenditure it’s unsurprising Wednesday’s Medium-Term Budget Policy Statement (MTBPS) signalled tax hikes totalling R15-billion to be announced in the February 2024 Budget.
But Finance Minister Enoch Godongwana budgeted another year of the R350 monthly Social Relief of Distress grant, which now ends in March 2025 – with the condition that the government pursues broad social security reform.
In the face of sharp civil society and labour criticism over expenditure cuts this grant extension is an important response on social protection that the MTBPS hammers home – 61% of the non-interest government spending goes to the social wage through health, education, housing and grants.
With a nod to the Springboks, Godongwana in his prepared speech told MPs: “I am convinced that if we are united and remain committed to this trajectory that will lift up our growth prospects, we leverage the power of the collective, and persevere in this difficult environment, we will come out victorious.”
But the grim fact is that servicing debt is the fastest-growing government expenditure. In the current 2023/24 financial year, R354.5-billion must go to pay interest on debt – slightly more than R14-billion than was set aside by February’s Budget – rising to R385.9-billion in 2024/25 and to R455.9-billion by 2026/27 financial year.
That’s more than spending on basic education, health and social protection. Or as the MTBPS put it: “For every R5 collected in revenue, government pays R1 to lenders instead of funding education, policing, health and other critical services.”
And so, the 2023 MTBPS is pushing “a careful balance between supporting a growth-enhancing agenda and stabilising public finances”.
Electricity and logistics reforms are central to this.
Measures to improve Eskom’s efficiency and accountability on the back of an independent review of its coal power stations would be announced shortly, according to Godongwana’s prepared MTBPS speech.
Legislative changes to the Eskom Debt Relief Act would introduce interest rates on the R254-billion bailout and allow the minister to stop allocations.
No bailout came for Transnet, or any other state-owned enterprise (SOE). And none was planned either, it emerged from Godongwana in the pre-MTBPS lock-up briefing.
“We have not closed the door, but we are not going to open it,” the finance minister said of the next three months negotiation for Transnet to agree to a roadmap that includes operational efficiencies, third party access and other stipulations.
Strict conditionality was part of the lessons learnt from previous SOE bailouts, when money was paid without, for example, better operational efficiencies.
Godongwana defended cuts totalling some R21-billion, even if overall spending increased by R10.3-billion. Those cuts were less than the R28-billion government underspent last year and less the R36-billion underspent two years ago, the minister pointed out to journalists.
The security cluster stood out as beneficiaries of new MTBPS allocations.
Police get R3.33-billion more, with detectives receiving R295.5-million to boost resources in this struggling service that missed around half its performance targets in the previous 2022/23 financial year, according to the annual report.
Controversially, SAPS protection services get R79.4-million more, with the bulk of that, or R52.4-million, going to presidential and VIP protection. And crime intelligence, which has been mired in a series of controversies, including maladministration, gets R43.3-million more.
Defence, which generated R751-million from participating in various peacekeeping missions, gets an additional R1.34-billion, overwhelmingly for staff costs.
Home Affairs gets a R1.31-billion increase; it generated just over R1-billion from issuing passports and smart IDs.
For the president’s salary and that of the deputy president and the ex-deputy president’s “leave gratuity payment”, the MTBPS allocates R6.227-million.
Much of Godongwana’s enforced juggle arises from lower-than-estimated tax collections – R56.8-billion – largely on the back of the end of the commodity boom. And this is further aggravated by rising debt service costs.
“Government faces difficult choices. The central problem is low economic growth. Frequent power cuts make it hard for firms to do business, while deteriorating rail freight and slow port operations mean fewer goods are transported to markets here and abroad,” according to the MTBPS.
Economic growth is expected to hit 0.8% in the current financial year. With gross debt at 77.7% of gross domestic product (GDP) – up from the 73% in February – the budget deficit stands now at 4.9%
To boost revenue, the government is set to borrow R553.7-billion a year for the next three years, according to the MTBPS. And that must go hand in hand with expenditure restraint and getting “better value for money”to ensure debt service costs do not crowd out social and other spending.
Key to the push for effective and efficient public spending was the reconfiguration of the state that’s to unfold over the next three years.
The focus is on eliminating overlaps and duplications, whether larger departments could absorb programmes and projects and clarity on legislative mandates, according to the MTBPS.
Recommendations are being formulated on the closure of programmes and entities in this reconfiguration push headed by National Treasury and the Presidency together with Planning, Monitoring and Evaluation and Public Service and Administration.
In the pre-MTBPS briefing Godongwana signalled President Cyril Ramaphosa could make “concrete” announcements in the 2024 State of the Nation Address.
A post-election government would be the opportunity to enact at least some of these reconfiguration measures.
It’s also possible the 2024 Budget would announce the compulsory norms and standards on municipal surcharges on electricity as part of a broader local government financing review.
However, the 2024 Budget will announce tax increases to raise an additional R15-billion.
That Budget also is set to announce, “a new mechanism through which private sector investors and multilateral institutions can co-invest with the government for selected infrastructure projects”, according to the MTBPS.
The takeaway from the 2023 MTBPS?
Measures to improve confidence to co-invest with the government and to reconfigure the state alongside improved rail and port logistics, and electricity reforms are central reforms to boost economic growth.
“The expectation of a vibrant, inclusive and sustainable economy that works for all South Africans is not a quest to aspire to, it is a reasonable and achievable endeavour. For its part, this MTBPS expresses government commitment to stabilise the foundation upon which this economy lies,” Godongwana said on Wednesday. DM