In his maiden medium term budget speech, Finance Minister Tito Mboweni said the country’s finances remain tight. Pressing liabilities such as:
- increasing gross national debt,
- continued bailouts of some troubled state-owned companies, and
- above inflation public wage increases
continue to slow economic growth. Minister Mboweni said the government is strongly committed to fiscal sustainability and stabilising debt without introducing fiscal measures that could limit growth.
In a nutshell, here are some of the key considerations from the October 2018 budget policy speech:
More bailouts for state companies. State companies continue to be a burden. Struggling SOE’s will receive yet more aid from the government: South African Airways (SAA) will get a R5 billion bailout, while SA Express will receive R1.2 billion and the South African Post Office will get R2.9 billion in new funding.
The Wage Bill is a fiscal risk. The state employs over 1.3 million workers, who have seen an average annual increase in salaries of 11.2% – far outstripping inflation. The National Treasury will not allocate any money to fund shortfalls following the higher-than-expected salary increases. Instead, state departments must find the money to pay for the increases within existing budgets.
Social spending is a priority. Government will reprioritise public spending to support growth. Steps will be taken to establish an Infrastructure Fund to create opportunities for private sector financing. State funding will remain focused on ensuring access to health and education, supporting low-income households through social grants, and providing basic services such as water and electricity.
Support for emerging farmers. The Land Bank will continue to support emerging farmers. Government will support the Bank to conclude transactions worth R16.2 billion over the next three to five years that to create more jobs in agriculture.
Increase capital investment. The private sector was called on to increase its role in assisting government with better implementation of its existing infrastructure plans. A policy objective is to promote an increase in capital investment by the private sector.
Government expenditure ceiling will remain intact. Despite major spending pressures, the window of expenditure will not increase for government in the next financial year. This will allow for real non-interest spending growth of 1.9% per year over the medium term. Funds will be reprioritized to support economic recovery.
No big tax changes. No additional tax increases are being proposed at this time.
More items to be zero rated for VAT. Minister Mboweni confirmed that the government proposes to zero-rate white bread flour, cake flour and sanitary pads from 1 April 2019.
GDP growth forecast has been revised. National Treasury has downgraded its expectations on GDP growth projections to a rate of 0.7%, in line with projections previously made by the IMF, the World Bank and the SA Reserve Bank.
Government will pay R247bn of debt-service costs. The interest that the state has to pay on money it has borrowed was revised in the 2018/2019 year with the state expected to pay R181bn in debt-service costs. This will grow to R247bn in 2021/22.