Good mini Budget will go to great if implemented
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AS IMPLIED by Finance Minister Enoch Godongwana, South Africa was largely saved by strong commodity prices as the economy got a windfall of R332 billion in extra income from exporting our primary commodities.
In total over the last year, South African exports were $30bn (R458bn) more than our imports (yes, that’s right, US dollars!).
Simply put, without the positive trade balance, nearly 9 percent of gross domestic product (GDP) would not be here today. Most of the positive trade balance comes from the high commodity prices. Agriculture and mining brought about a windfall of R120bn for government revenue.
This gave the Treasury some room as they could spend billions on the disaster relief grant without increasing the government deficit. They lowered the government deficit ration to GDP.
Telling the country it spends more than R1 trillion on the social wage every medium-term budget outlook was one way of putting some counter facts on the table for those who believe everyone should get a grant. It’s interesting to note that at present nearly 28 million South Africans are social grant recipients.
What was missing in this part of the speech was that there are only 7 million income taxpayers. If would have added perspective that for every income taxpayer there are four people getting a grant.
That would make it clear to people that grants can never be enough to get people out of poverty as many of those PAYE earners are neither rich and have families to feed themselves.
But, for me, the important part is the commitment that no additional funding is available for state-owned enterprises (SOEs) and the acknowledgement that most are badly run.
Since 2013, R290bn has been spent on SOE bailouts, so an “informed” assessment of their strategic relevance will hopefully see many of them sold off and so relieve the taxpayer of this burden. (Eskom is still to receive a further R60bn odd, and some odds and ends go to SAA).
By my calculation the bailouts and “equity injections” would have allowed every PAYE taxpayer to cut their taxes by about 6 percent.
Add the cost of state capture, and quite easily the South African income taxpayer could have paid at least 10 percent less tax every year over the past decade and have a 20 percent lower electricity price. That alone would have resulted in more growth and jobs. All this excludes inefficiencies, so there are more savings to be had.
And here is the other thing I hear in the speech and see in the data. The minister is serious about jobs. That is the largest cause of our poverty and inequality. There is no doubt in my mind that this Medium-Term Budget Policy Statement (MTBPS) made that clear.
The other problem that the minister acknowledge was that local government is critical and that R450bn is flowing to them from the national government. That is apart from their own income from rates and utility sales.
Putting the problem municipalities on a more sustainable footing is going to take a lot of work. I know that many rotten apples are also on that level of the government, but when officials see action on the rot and on SOEs we will hopefully get a better response, as for too long all the talking was behind close doors and the consequences to that hardly occurred.
But, again, it was frightening that 43 municipalities are in financial crisis, while another 100 are at risk of going there. That is over half of our municipalities. I suspect that at least some help from the Treasury or consultants will be for the weaker ones – as long as the Treasury, or provincial Treasuries, appoint them. Too many officials with sticky fingers, I’m afraid.
Also, great news for small, medium and micro enterprises (SMMEs) is that some support measures are on the way, but that is a little late for many.
I am of the opinion that the government should have paid money out to SMMEs rather than grants as these are the job creators, and if they kept going we would not have had a 34.4 percent unemployment rate. Saving what one has during a lockdown and pandemic for, say, four to six months is probably cheaper than losing those enterprises and having them start out from scratch.
But there’s no exact programme or news yet, and that is always a worry as it may mean things are not ready yet.
I am normally worried about much of government policy, but this speech was once again filled with relatively good news. Most past Budget speeches in South Africa are not bad or good. However, the implementation beyond managing the debt and keeping the purse closed in most cases, beyond that, much does not happen.
However, Godongwana has talked of practical steps in allowing third-party access to the ports and the private-public partnership at Beitbridge, which costs trucks, but the process is an hour or two and not days. That allows our goods further and quicker into Africa.
In my opinion, the MTBPS was good, and the Treasury has shown it can help new ministers find their feet, and they kept the country going.
The big test as always is implementation, but it was a great start for the minister, with strong support from the Treasury, and with lots of realism.
Mike Schüssler is the chief economist at economists.co.za.
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