By Chris Harmse
JOHANNESBURG - Against what many people from the press and social media expected, Minister of Finance Tito Mboweni delivered once again a classic Medium-Term Budget Policy Statement (MTBPS).
Nothing was said on tax hikes, or increased new borrowing to bail out Denel, the SA Post Office or other State-owned enterprises.
The R10.5billion that was grated to rescue SA Airways came as expected, although the money will be re-allocated “through reductions to the baselines of national departments, public entities and conditional grants”.
This is a victory for the Public Enterprises Minister Pravin Gordhan and the Cosatu camp. SAA have now received almost R27bn in bail-out money for this fiscal year.
There is no guarantee that the rescue plan will work and that this is the end of further rescue monies.
The second point of a possible clash between the government and labour lies in the fiscus plan to achieve wage bill reductions by freezing wages for the next three years.
This decision comes against the background that the government has not implemented the third year of the 2018 wage agreement and is a matter before the Labour Court.
The freezing of wages forms an important part of the proposed steps to reduce the fiscal deficit and to stabilise the debt-to-gross domestic product (GDP) over the next five years.
Reductions in non-interest spending are planned to total R300billion over the next three years and projected tax increases of R40bn till 2024/25 is envisaged.
These steps are an attempt to stabilise the debt-to-GDP-ratio at 95percent by 2024/25.
This adjusted debt-to-GDP of 95 percent within four years is much higher than the 85percent that was predicted earlier.
This spiralling debt ratio comes in reaction to expectations that South Africa’s real GDP growth will average 2.1percent over the medium term, with output only returning to pre-pandemic levels in 2024.
The minster emphasised: “The main risks to the economic outlook are weaker-than-expected growth, continued deterioration in the public finances and a failure to implement structural reforms.”
The positive approach in the MTBPS is the attempts by the Budget to finance and support the economic recovery plan of the president.
The Budget over the next four years will give a priority on building infrastructure, expanding electricity generation, allocating digital spectrum.
Priorities will be the allocation of funds that are supporting rapid industrialisation and employment.
The minister had emphasised that the government would roll out structural reforms such as “modernising network industries, reducing barriers to entry, and increasing regional integration and trade”.
These attempts must be welcomed and supported in the view that investment expenditure may become the main focus of budgets to come.
The National Treasury estimates that, in combination, these reforms can raise growth to more than 3percent over the next 10 years and create more than one million jobs.
Dr Chris Harmse is an economist at CH Economics.
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