CAPE TOWN - As South Africans wait with bated breath for today’s much anticipated medium term budget speech, we relay the importance of this annual speech and what it actually means.
The Medium Term Budget Speech, more commonly known as the mini budget, sets out the government’s three year revenue and expenditure plans.
The statement also details projected economic growth over the fiscal period.
A framework is presented in the mini budget which sets out the integrated fiscal policy and budgeting over the medium-term.
The speech is more eagerly anticipated especially as today marks the first time Finance Minister Malusi Gigaba will be relaying the policy statement.
In addition to this, Gigaba is facing a R40 billion tax hole.
This means that the budget would effectively have to cut down on unnecessary expenditure and consider selling state owned enterprises in order to stay afloat in the new fiscal year.
Key features of the MTBS:
-Three year budget forecast
-Analysis of policy implications as a result of budget projections
-The publication of the Medium Term budget policy statement. This enables Parliament and institutions of civil society to participate meaningfully in the debate.
The three year budget allocations represent the starting point for the budget process. These allocations are consulted with the relevant departments prior to their allocation. The specified departments would thus have agreed on the budget allocations and have agreed on spending according to the budget.
Public debate of plans
Parliament is then asked to vote on the budget allocations for the coming year only. The detailed three year plan provides a basis for Parliament and civil society to engage with forecast budget plans ahead of Government's expenditure.
The publication of the Medium Term Budget Policy Statement forms part of the country's democratic positioning. It is a step forward in the transparency of the budget-making process.
The statement further enables all stakeholders with the capacity to engage in part of the discussion of the nation's priorities. It also makes the country's budget a transparent process to ensure that civil society and all shareholders are well informed.
In addition, it sets the tone on Government's plans to achieve the nation's social and economic development goals.
Notably, these plans will influence the extent to which the country and civil society can achieve survival in the future economic climate.
South Africa emerged from its second recession in less than a decade. While gross domestic growth is expected to expand faster this year, weak investor and business confidence is restricting growth and job creation.
According to Statistics South Africa, the growth forecast is expected to increase substantially until the year 2019, however business confidence is a pitfall that South Africa faces post-recession. The lack of business confidence may inhibit the country's overall growth.
Sluggish GDP impedes the country's ability to meet its revenue targets. In addition, the tax shortfall for the current year could be crippling for South Africa.
Gigaba is expected to announce a deficit estimate larger than projected in February. Given the fact of Treasury is also under pressure from government-worker labour unions demanding a pay increase of more than 10%, inflation of 5.1% may be amended.
S&P and Fitch cut the nation’s foreign-currency debt to junk in April after President Jacob Zuma replaced Pravin Gordhan with Gigaba. While S&P and Moody’s Investors Service still assess the rand-denominated debt as investment grade, both companies are scheduled to give updates next month and will be watching for a deterioration in debt and deficit projections.
- BUSINESS REPORT ONLINE