Mini-budget’s 5-point economic reformation plan – explained

Thursday saw the nation fixated as the newly appointed finance minister, Tito Mboweni, delivered his maiden Medium-term Budget Policy Statement (MTBPS). While it came as no surprise that the economy is suffering given the recent technical recession announcement, Mboweni managed to maintain a positive outlook as he announced the proposed 5-point plan.

“South Africa has been launched into a difficult time. With electricity and food prices increasing and unemployment at an all-time high, citizens are struggling,” Mboweni said. Against this backdrop and  the non-materialisation of the February Budget speech outlook, Mboweni committed his efforts to restoring the trust between the government and South Africans.

He further suggested that steps in the right direction would be stabilising national debts, reducing structural deficits, strengthening institutions like the South African Revenue Services (SARS) and demolishing walls that exist between the public and private sectors.

The statement also saw the detailing of President Cyril Ramaphosa’s 5-point reformation plan:

1. Implement growth-enhancing economic reforms: “Investors are in it for the long run. They want to know that our policies are clear and consistent. We must stop talking in contradictory terms,” Mboweni said. He further mentioned the upcoming Investment Conference as an opportunity to begin this process.

Other stand-outs were the easing of visa requirements to boost the economy. Also the commitment to improve data quality and reducing the costs, and to review the Electricity Pricing Policy.

2. Reprioritise public spending to support growth and job creation: “The second element of the president’s plan is about reprioritisation and more effective spending. Spending is projected to be R5.9 trillion over the medium term which means it is set to grow faster than inflation,” said Mboweni.

Areas that will benefit from reprioritisation include the Expanded Public Works Programme, the restoration of SARS, the agricultural sector, housing subsidies, township development and water and service delivery programmes.

“What we’ve seen is a full-scale blow-out. Now more than ever do we need to implement a spending review and start increasing accountability,” said Democratic Alliance’s shadow minister of finance, David Maynier.

3. Establish an infrastructure fund: “The third element of the president’s plan is to improve the government’s approach to infrastructure investment and to establish an Infrastructure Fund. Over the next 3 years, public infrastructure expenditure is estimated to be R855.2 billion, of which state-owned companies alone account for R370.2 billion,” said Mboweni.

General government accounts for the remaining R485 billion, mainly in the form of conditional infrastructure grants. But, too often government spends money on infrastructure when it could be done more effectively by the private sector, Mboweni said.

“It is gratifying to hear of measures to ensure accountability in government, so that tax payers can be assured that their hard-earned money is put to good use for infrastructural improvement, education, job creation and the agricultural sector – the latter especially relevant in terms of food security for the nation,” said Dr Andrew Golding, chief executive of the Pam Golding Property group.

4. Address urgent and pressing matters in education and health: The fourth element of the president’s plan is to address urgent matters in education and health. The largest allocations in the medium term will be for education, health, social development and community development. Together, these four areas will receive more than 60 per cent of non-interest expenditure.

Mboweni said nobody should be educated in an unsafe school environment. “Our children must have access to adequate sanitation. We have committed to eradicating pit latrines at schools.”

In addition, access to health care services is enshrined in our Constitution and in our Bill of Rights. In this context, Mboweni committed to continuing the drive towards the gradually phased implementation of National Health Insurance.

“We are immediately reprioritising R350 million to recruit more than 2 000 health professionals into public health facilities. A further R150 million will be used to purchase beds and linen for hospitals where the need is most dire. These two interventions build on the Presidential Health Summit convened last weekend which has brought new focus to improving the quality of health care,” he said.

5. Invest in municipal social infrastructure improvement: The final element of the plan is to stimulate the economy by investing in municipal social infrastructure.

“All South Africans share the pain of poorly performing municipalities: potholes, broken street lights, roads that flood when it rains, and challenges with electricity. But we are acutely aware that some municipalities are facing serious capacity constraints in executing their plans and programmes. The Auditor-General has consistently shared audit messages that emphasise the importance of accountability in the management of municipal affairs,” Mboweni explained.

Other key take-aways

The country has had to further reduce growth projections since February.

“The consolidated budget deficit is estimated at 4 per cent in 2018/19, compared with the 2018 budget projection of 3.6 per cent of GDP. After rising to 4.2 per cent, the deficit stabilises at 4 per cent in the outer years,” Mboweni said.

Other risks, identified in the February 2018 Budget, have materialised, including a public-service wage agreement significantly above inflation. 

“The 2018 public-service wage agreement exceeds budgeted baselines by about R30.2 billion over the medium term. We have not allocated additional money for this. National and provincial departments will be expected to absorb these costs within their compensation baselines,” Mboweni announced.

After receiving 3 299 tweets in total the decision was taken that as of 1 April 2019 sanitary pads should be tax free. Along with bread flour and cake flour.

 “The revenue loss associated with zero-rating these items is estimated at R1.2 billion. However, zero-rating these products targets low-income households and restores the dignity of our people,” Mboweni explained.

On carbon tax, following the concerns of business and labour during the parliamentary hearings, the carbon budgeting system and the carbon tax will be aligned. This will be done by imposing a higher tax rate as a penalty for emissions exceeding the carbon budget. The original date of implementation was 1 January 2019 but will be postponed to 1 June 2019.

Mention was also made of plans to reform controversial state-owned enterprises (SOE’s) like South African Airways (SAA) and Eskom.

According to Prof. Raymond Parsons from the North West University (NWU) School of Business & Governance, deeper and tougher decisions still lie ahead if the economy is to break out of its current “low growth trap” and exceed the expected short-term growth rates of about 1.5% to 2.0%. He said that what again clearly shines through in the fiscal gloom of recent years, as well as in 2018 MTBPS, is the overwhelming need for a strong and sustainable boost in the country’s growth rate through significant structural reforms and their implementation,

“All South Africans want us to choose the path of prosperity and opportunity. We are at the crossroads, we can either choose to go left or to go right or to go straight on the path to nowhere. We are choosing the road of prosperity and opportunity, where the true spirit of South Africa lies. I urge South Africans to journey with us on this path,” Mboweni concluded.