South Africa's economy is now expected to contract by 7.2 per cent in 2020, its largest shrinkage in nearly 90 years, due to Covid-19, Finance Minister Tito Mboweni said on June 24. Photo: Twitter/South African Government @GovernmentZA
South Africa's economy is now expected to contract by 7.2 per cent in 2020, its largest shrinkage in nearly 90 years, due to Covid-19, Finance Minister Tito Mboweni said on June 24. Photo: Twitter/South African Government @GovernmentZA

Analysing what the minister did not say

By Adri Senekal de Wet Time of article published Jun 25, 2020

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CAPE TOWN - Most citizens misunderstood what the Finance Minister Tito Mboweni had to say in his supplementary Budget. This was an emergency Budget to indicate the dire straits that government finances are in and to ask Parliament to approve the R500 billion response packet for Covid-19.

The Budget did not say the government would give an extra R10billion aid to SAA. The Budget does not say that the government will support Eskom or the SABC further. In fact, there is a warning to power utility Eskom. The Budget does not say anything on the R160 billion savings on the government’s salary bill. The Budget does not address sectors that are in distress like tourism, agriculture, entertainment, etc.

The Budget does not say directly that the consequences of the Budget and the zero-based Budgets that are introduced for the future will have to cut the salary bill sharply if the government wants to introduce a balanced Budget in three years.

This implies that the salary bill from 2023/24 can only grow equal to the increase in tax income, or if not, that state department’s other expenditure will have to decrease.

Mboweni gave the bad news.

The economy will grow at -7.2 percent this year. Tax income will decrease by R300bn. The Budget deficit will increase from 6.8percent of gross domestic product (GDP) to 15.7­percent of GDP. The government’s total debt-to-GDP will increase from 65.5percent to 81.1percent this year and 87.4percent over three years.

To address certain hard-core issues the Budget proposes R21.5bn for: “Covid-19-related health care spending. It also proposes a further allocation of R12.6bn to services at the frontline of our response to the pandemic.”

A further R25.5bn (R41bn in total) is allocated to the Social Department to roll out the short-term “Special Relief of Distress grant” that will temporarily support those without an income. A further R19.6bn has been set aside for the repurposed pubic employment and youth employment intervention programmes. The government is also finalising amendments to the repayment holiday and turnover limit, and relaxing terms and conditions to support the loan guarantee scheme to businesses and to help them to start up again. 

The Reserve Bank and commercial banks are finalising the revised legal arrangements. The minister must be recommended. The financial markets liked what he said, as the rand moved stronger after the Budget and bond rates came down noticeably. 

 Adri Senekal De Wet is Executive Editor of Business Report.

BUSINESS REPORT 

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