Moody's is watching: Tito Mboweni's budget makes the case for fiscal consolidation
PARLIAMENT – Finance Minister Tito Mboweni on Wednesday tabled a budget that put fiscal consolidation front and centre in a bid to contain mounting state debt and proposed cutting R160 bilion from the public wage bill over the next three years.
The figure is roughly equal to the sum the state has doled out to struggling state-owned enterprises in recent years and sees National Treasury put its foot down with the public service for the first time, as South Africa tries to fend off a downgrade to junk status by Moody's rating agency.
Public representatives, including the president, will get no salary increase this year and legislation will be passed to contain salaries at public entities.
Mboweni said high public service wage increases, in some years above inflation, had prevented the hiring of more policemen, teachers and other civil servants to serve a growing population.
"We cannot go on like this. Classroom sizes are growing, hospitals are getting fuller and our communities are becoming increasingly unsafe," he told Parliament.
He said he believed the Treasury and trade unions "will find each other" on the measure, and Moody's would favourably appraise the government's efforts to bring the budget deficit under control.
"Our reading is that they will react to how they read our fiscal stance... I don't know, but I don't think they will re-rate us on our fiscal stance," Mboweni told the media shortly before he tabled his budget in the National Assembly.
He set out the state's plans to curb spending by R156.1 billion over the next three years, with savings of R37.8 billion to be realised in the 2020/21 financial year.
South Africa's economy is now estimated to have expanded by just 0.3 percent in 2019, down from a forecast of 0.5 percent given in the medium term budget policy statement in October. For 2020, Mboweni adjusted the growth forecast down to 0.9 percent.
He said achieving stronger growth and stemming record unemployment was possible, provided the government mapped out a plan.
"Winning requires hard work, focus, time, patience and resilience. Achieving economic growth and higher unemployment levels requires a plan," said Mboweni.
Dampening the outlook further, he said tax collection for the year was now expected to be R63.3 billion lower than earlier predicted, at R1.58 trillion.
However a decision had been taken not to raise taxes, but rather to give a measure of real personal income tax relief, including to the middle classes.
"This budget means that a teacher who earns on average R460,000 a year, will see their income tax reduced by over R1,500 a year," he said.
The minister said there had been talks on lowering corporate taxes and said the economy would be boosted by opening markets to trade with the rest of Africa, lowering the cost of doing business, strengthening the macro-economic framework and restructuring state-owned enterprises.
Some R60 billion would still flow to troubled state power utility Eskom and national carrier South African Airways, but spending would increasingly focus on health, education and social development.
"Our measures will support growth. But fiscal sustainability will be uppermost in our mind," Mboweni said.
Turning to the aloe plant he has taken to referencing in his budget speech, he added: "Our Aloe Ferox can withstand the long dry season because it is unsentimental. It sheds dead weight, in order to direct increasingly scarce resources to what is young and vital."
The review of the public wage bill would see remuneration contract by one percent in real terms over the three-year medium term period, translating into a cut of R160.2 billion, the finance minister said. These reductions make up the bulk of the state's consolidated savings cuts of R156.1 million over the next three years.
"The total reduction is mainly the result of lowering programme baselines and the wage by bill by R261 billion. These are partially offset by additions and reallocations of R111 billion. Of this, more than half, or R60 billion is for Eskom and South African Airways," Mboweni said.
Mboweni reiterated to journalists that he had a private view on SAA that did not fly with the rest of government - suggesting he only reluctantly allocated more money to the airline. SAA's allocation of R16.4 billion includes about R2.billion for the business rescue effort to salvage it, as well as repayment of an emergency loan of R3.5 billion.
"The SAA sword of Damocles has now fallen on us..... It is the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus," he said.
Mboweni stressed that ensuring a stable electricity supply was government's "number one task" after chronic outages shaved an estimated 0.1 percent off the country's GDP in the fourth quarter of 2019. The state has set aside R230 billion over a decade to restructure the electricity sector.
The minister also pronounced on a labour proposal to use government employee pension fund savings administered by the Public Investment Corporation to give Eskom debt relief of R254 billion. He said it was "not a bad idea" but cautioned that if PIC administered savings were to be converted to equity this should apply to private savings as well.
The National Treasury said the measures set out in the budget were expected to narrow the consolidated budget deficit from 6.8 percent to 5.7 percent of GDP by 2022/23. The consolidated deficit for 2019/20 is expected to be 6.3 percent.
The main opposition Democratic Alliance said Mboweni had missed the boat regarding reining in of national debt.
"Minister Mboweni has often committed himself to stabilising debt. Now he has raised the white flag of surrender," DA shadow minister of finance, Geordin Hill-Lewis said.
Mboweni signaled that the government would proceed with plans for a state bank and a sovereign wealth fund, saying the architecture would be that of a retail bank operating on commercial principles.
Deputy finance minister David Masondo said the sovereign wealth fund was simply a case of saving for "rainy days" and suggested funds from the sale of broadcasting spectrum and mineral rights could be poured into it.
African News Agency (ANA)