PWC Economists have predicted that political pressures were likely to prevent the National Treasury from reducing its expenditure allocated to state-owned enterprises (SOEs). File photo: Reuters
PWC Economists have predicted that political pressures were likely to prevent the National Treasury from reducing its expenditure allocated to state-owned enterprises (SOEs). File photo: Reuters

Treasury in political spot over SOE spending - PwC

By Siphelele Dludla Time of article published Feb 18, 2021

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JOHANNESBURG - PWC ECONOMISTS have predicted that political pressures were likely to prevent the National Treasury from reducing its expenditure allocated to state-owned enterprises (SOEs).

In October, Finance Minister Tito Mboweni signalled that the government would, from 2022, implement the principles of zero-based budgeting over the medium term.

Zero-based budgeting is a budgeting method where all expenditures must be justified for each new financial period instead of rolling over budgets from the previous year.

In a Budget preview report released yesterday, PwC tax policy leader Kyle Mandy said Budget 2021 was unlikely to depart from previous financial commitments made to Eskom, SAA and other SOEs.

Eskom was allocated R23 billion in the 2021/22 financial year, SAA R10.5bn to implement its business rescue plan, and the Land Bank received R3bn to support its restructuring.

Mandy said zero-based budgeting would be instrumental in addressing the negative impact of unsustainable incremental increases to expenditure, particularly wasteful expenditure.

She said Mboweni’s 2020 Medium-Term Budget Policy Statement indicated that, by 2023, contingent liabilities were expected to exceed R1 trillion due to government guarantees.

“The long-standing wish is for the Minister of Finance to drastically reduce the provision of debt funding guarantees to SOEs,” Mandy said. “This may be achieved by facilitating an increase in private sector investment and the provision of management expertise.”

Mboweni next week will table the 2021 Budget Review which is expected to focus more on how the country’s fiscus will respond to the Covid-19 vaccination demands.

Mandy said expenditure would be trimmed at the margins and reprioritised towards medical and other appropriate and necessary social expenditure.

She said Mboweni was likely to restate the government’s commitment to reducing the public sector wage bill.

“Although such funds may be better spent on healthcare and other social needs, it is likely that political pressures will prevent National Treasury from reducing the quantum of expenditure allocated to the bailout of SOEs,” she said.

“Despite pressures on the government to source funding for a Covid-19 vaccination programme, it is unlikely that any expenditure already promised for SOEs will be reallocated for this purpose.”

The PwC report said a comprehensive cost-benefit analysis of the contribution of SOEs to South African society and economy was urgently required.

South Africa is projected to see a fiscal deficit equal to 15.7 percent of gross domestic product (GDP) in the 2020/21 financial year, up from 6.4 percent in 2019/20 due to the adverse effect of the recession on government revenue.

But based on better-than-expected tax collections to the end of December 2020 and slightly stronger economic growth assumptions, this deficit could be revised lower towards 15 percent of GDP.

PwC has estimated a contraction in GDP of 8.8 percent in 2020, and forecasts growth of 3.8 percent in 2021.

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