/ 27 October 2022

Medium-term budget elicits mixed feelings

Finance Minister Enoch Godongwana

Finance Minister Enoch Godongwana provided no relief from rising living costs and failed to outline prospects for economic growth in the medium-term budget policy statement (MTBPS) tabled in parliament on Wednesday, the Democratic Alliance said.

The greatest failing of the statement was its silence on how the government will address the plight of the vulnerable as they battle to survive relentlessly upward spiralling costs, DA legislator and head of finance Dion George said in a statement.

“The minister is silent on how the most vulnerable South Africans will be supported other than the extension of the social relief of distress, which the DA does support,” he added.

George said South Africa’s main opposition party had expected Godongwana to announce policy interventions that would result in more robust economic growth and generate desperately needed jobs, but “instead, he reinforced the proven failed developmental state model that places a dysfunctional state at the centre of our economy through more bailouts to SOEs [state-owned enterprises] and accelerated government expenditure”.

Godongwana gave lifelines to the South African National Roads Agency Limited (Sanral), Transnet and Denel, by way of a special appropriations bill that will see more than R30-billion flowing to the struggling state-owned entities.

George said the bailouts to SOEs crowded out spending that could have fuelled economic growth.

“Instead of extending bailouts the minister could easily have announced an expansion of the zero-rated food basket that would have brought immediate relief to the ever-growing hunger crisis that the majority of South African households are facing,” he said. 

In the medium-term budget policy statement, the treasury also said it would relieve Eskom of a portion of its close to R400-billion in debt. It was not specified how much of the utilities’ debt the government will take onto its balance sheet, but Godongwana said in his speech to parliament that the amount is expected to be between a third and two-thirds of the debt. 

“Instead of reducing this debt burden on hard working South Africans, the transfer of a large portion of Eskom’s very significant debt liabilities (between R126-billion and R260-billion) to the national balance sheet will result in a significant increase in the debt-to-GDP ratio and a continuous upward spiral in interest repayments that will crowd out more service delivery to the poorest South Africans,” George said. 

He continued: “This budget is a clear reflection that the government has run out of money and out of ideas.”

South Africa’s biggest agricultural organisation, Agri SA, said it was disappointed that Godongwana failed to outline critical interventions to support South Africa’s hard-hit farmers.

“The [agriculture] sector, which is a key contributor to the South African economy and our guarantor of food security, has been hit hardest by rising input costs and farmers find themselves in dire financial circumstances. Yet Minister Godongwana did not announce any measures to help ensure the sustainability of the sector,” the organisation said. 

Old Mutual chief economist Johann Els said the budget lacked detail around the restructuring of Eskom’s debt, with this being deferred to the February 2023 main budget, despite Godongwana’s earlier guidance that this detail would be unpacked in the medium-term policy statement.

“This could impact treasury’s — and the minister’s — credibility going into the next budget policy, but overall, all other aspects of the statement were largely positive with a great mix including deficit reduction, debt ratio stabilisation and extra spending,” Els said. 

He however applauded better-than-expected deficit and primary balance outcomes, an improved debt ratio outlook and continued strong emphasis on fiscal consolidation as positive outcomes that would all contribute towards financial market approval.

“Extra spending for social grants and SOEs is looking affordable at this stage and should reduce risks in these areas too,” he added.

Bernard Sacks from Mazars said the mini-budget signalled that “the honeymoon phase is over regarding additional taxes on commodity prices, however, the corporate sector, which includes finance, banking and real estate, seems to have performed better than anticipated”.

“Tax collections are down in some respects, such as the fuel levy, due to the fuel levy relief fund, and is increased in other areas, specifically corporate tax and personal tax,” he said.

“No new taxes have been announced, which is normal for this time of year. There have been a number of fresh allocations to SOEs, some of which have been announced. What does seem to be good news is the fair amount of infrastructure spending planned, which, in turn, will assist with stimulating the economy.”

Business Leadership South Africa (BLSA) said the MTBPS affirmed the country’s adherence to a policy of fiscal consolidation that would lead to better growth in the future.

“Fiscal discipline is watched closely by investors and ratings agencies and BLSA believes this budget statement will support SA in rising out of sub-investment grade ratings,” the lobby group said. 

The mini-budget showed that South Africa was making progress, although very serious challenges remained in the quest to build an efficient, growing economy able to create jobs.