Wednesday, 30 October 2019

Cape Town: Finance Minister Tito Mboweni has outlined a raft of cost-cutting measures that will see government save billions of rands in the public sector wage bill.

Speaking in Parliament today, Mboweni said government has to significantly reduce expenditure in goods and services as well as transfers if it is to stabilise debt by 2022/23.

The interventions will see the axe fall on various perks and salary increments frozen and later cut.

As a first step, he said, the National Treasury has identified spending reductions of R21 billion in 2020/21 and R29 billion in 2021/22 in these areas.

“In addition, non‐interest spending in the outer year of the framework is constrained in line with consumer price inflation,” he said.

The Minister said government will need to find additional measures in excess of R150 billion over the next three years – about R50 billion a year – if it is to achieve its target.

To achieve this, Mboweni said government will need to deal with the bulging public service wage bill, state‐owned companies, executive remuneration and benefits and fiscal leakages.

In the Review accompanying the MTBPS statement, the National Treasury sets out a detailed analysis of spending on public‐sector wages. It reveals that 29 000 public servants, plus members of the national executive, Members of Parliament, members of the provincial executive, among others, each earned more than R1 million last year.

“After adjusting for inflation, this is more than double the number of civil servants earning more than R1 million in 2006/07,” he said.

The average wage increase across government was 6.8% in 2018/19, or 2.2% above inflation.

After adjusting for inflation, the average government wage has risen by 66% in the last ten years, he said.

In his speech, Mboweni also called for a reduction in Board and Executive Management compensation and benefits.

He said President Cyril Ramaphosa has agreed to guidelines which will apply to members of the Cabinet and members of provincial executives. These include that, in the foreseeable future, Cabinet, Premiers and MECs’ salaries will be frozen at current levels, with the likelihood of an adjustment downwards.

SA’s economic growth projection revised down to 0.5%

South Africa expects the economy to grow at a rate of 0.5% in 2019 – which is a downward revision from the 1.5% that was projected in the February budget.

“It is our job to chart a course that is strategic, sober, careful and inclusive. The economy is now forecast to grow at 0.5 % in 2019 compared to the 1.5 % expected in February,” he said.

In addition, growth is projected to slowly rise to 1.7 % in 2022, supported by household consumption and private‐sector investment.

Mboweni’s projection comes after the country’s Gross Domestic Product (GDP) contracted by a revised 3.1% on a seasonally adjusted and annualised basis in the first quarter of the year.

Sustainable solution needed for struggling SOCs

Governance failures and poor operational performance at some state owned companies continue to pose a risk to the fiscus, National Treasury said on Wednesday.

In its Growth, Sustainability and Renewal document, Treasury said decisions are required to manage the ongoing impact of these entities on the fiscus.

The document notes that state owned companies (SOCs)  are adding to spending pressures on government, with funding for South African Airways (SAA), the South African Broadcasting Corporation (SABC) , Denel and South African Express amounting to R10.8 billion in the current year.

Meanwhile, the national carrier, SAA, is unlikely to generate sufficient cash flow to sustain operations in its current configuration.

NPA, SARS receive cash injection

The National Prosecuting Authority (NPA) and South African Revenue Service (SARS) will, respectively, receive an additional R1.3 billion and R1 billion over the next two years as government bolsters corruption fighting efforts and improve revenue collection.

“Where possible, given budgetary constraints, government is shifting resources to areas that urgently need to strengthen capacity,” he said.

Through reprioritisation, the NPA receives an additional R1.3 billion, and the South African Revenue Service receives an additional R1 billion for the next two years. These funding shifts, Mboweni said, will bolster efforts to combat corruption and improve revenue collection.

Mboweni tables wasteful expenditure interventions

The National Treasury has tabled before Parliament a litany of options the state has to consider if it is to improve efficiency and reduce wasteful expenditure.

Among these is the regulation of development charges through the Municipal Fiscal Powers and Functions Amendment Bill, which will be tabled shortly.

Presented by Finance Minister Tito Mboweni today, the “Growth, Sustainability and Renewal” document also recommends that National Treasury endorses the suspension of the implementation of new public transport networks in cities that have been in the planning stage for over a decade with no roll-out of services to residents.

The document also calls for the merging and consolidation of entities and regulatory agencies and disposal of unused land and other assets.

“Initiate work to limit claims against the state, including through a review of medico-legal claims and accelerated implementation of the Road Accident Benefit Scheme,” reads the document.

The report also calls on government to manage benefits received by political office bearers, through reforms to the Ministerial Handbook.

NHI roll-out to cost an additional R33 billion

The rollout of the much-anticipated National Health Insurance (NHI) will require an addition R33 billion annually from the 2025/26 financial year.

This would be in addition to the previous estimations contained in the Green and White Papers of 2011 and 2017 respectively, of R74 billion a year.

“Following the introduction of the National Health Insurance Bill in Parliament earlier this year, the Department of Health reprioritised funds within its 2019/20 budget to establish an NHI Office. Over the medium term, this office will receive increasing allocations for its operational costs,” it said.

The NHI policy aims to provide healthcare more equitably in South Africa, with a priority to improve the efficiency of service delivery.

Ministers to fly economy class, buy their own cellphones

Finance Minister Tito Mboweni says there is a need to trim civil servant perks and stop wastages as the debt to GDP ratio is expected to rise to 71.3% in 2023.

This will include relooking at how much the public service spends on Ministerial cars, cellphone benefits and ensuring that everyone — including Ministers, the provincial executive and Mayors — travel economy class for all domestic flights.

“There are a number of risks to the fiscal framework, which this government has to confront head-on. The debt to GDP ratio is beginning to reach unsustainable levels. Once the debt to GDP reaches 60%, we should be concerned. Ideally, it should be 30% or lower.

“So the debt to GDP ratio is a very serious matter we need to attend to,” Mboweni said.

In the past, Ministers used to travel first class with their assistants. This was changed and currently, Ministers are eligible to travel business class.

Mboweni said government will stop buying cellphones for public representatives and senior managers in the public service. This area of expenditure will be looked at with a view of forcing public servants to buy their own phones and claim for official calls.

He said an audit of how much government spends on cellphones currently stood at R5 billion “on a 12 month basis”.

The Minister said National Treasury is looking at ways of capping spend on official cars to not exceed R800 000, including VAT.

What needs to be done to stabilise debt

Mboweni said the problem with the country is that government spends more than it makes.

“Our problem is that we spend more than we earn. It is as simple as that. How will we fix our problem? To stabilise debt, government will target a primary balance by 2022/23. The target measure excludes support to Eskom because that is part of a separate process.

“As a first step, we have identified spending reductions of R21 billion in 2020/21 and R29 billion in 2021/22 mostly in the area of goods and services, and transfers,” he said.

In addition, non‐interest spending in the outer year of the framework is constrained in line with consumer price inflation. Mboweni said if the country wants to achieve its target, there is a need to find additional measures in excess of R150 billion over the next three years or about R50 billion a year.

“How will we do this? We will need to deal with the challenges of the wage bill, State‐owned companies, executive remuneration and benefits and fiscal leakages,” said the Minister.

He hinted at the possibility of selling off non-strategic assets in order to raise some cash.

“[The National Treasury Director-General] and myself have an agreement that we are going to sell some assets. When you are in difficult times … you rebalance your portfolio.

Minister projects a R53bn revenue shortfall

Finance Minister Tito Mboweni has projected a R53 billion revenue collection shortfall for the current financial year.

According to the National Treasury’s budget review document, the bulk of the 2018/19 shortfall resulted from weaker-than-expected economic growth in 2019.

“We now expect to collect R1.37 trillion this year. This is R53 billion, or 4%, less than we expected.

“Looking ahead, our revenue forecasts are prudent. We assume an elasticity of one, which means a one-to‐one relationship between growth in taxes and economic growth, after adjusting for tax measures,” he said.

In 2018/19, government collected R57.3 billion less than projected in the 2018 Budget, and R14.5 billion less than set out in the 2019 Budget.

The 2018 revenue collection shortfall was the largest under-collection since 2009/10, following the global financial crisis.

It was partly driven by large and unexpected once-off payments of VAT refunds in line with commitments in the 2018 revenue collection.

Inflation expected to rise steadily due to electricity tariff hikes

Headline inflation is expected to increase gradually in 2019 with the Reserve Bank maintaining its inflation targeting policy of below 6%, the National Treasury said on Wednesday.

“Inflation is forecast to increase gradually as a result of electricity tariff hikes, and higher meat and grain prices.

“Administered price inflation remains high, with electricity and water producer price inflation reaching 14.6% in July 2019,” the National Treasury said.

Finance Minister Tito Mboweni tabled his medium-term budget in the National Assembly, on Wednesday afternoon.

“In September, headline consumer price inflation was 4.1%. Lower inflation is good for everyone, particularly for the poor and the working class.

“In short, it is a mixed picture with some positive signs.”

Consumers spending less on non-essential items due to rising unemployment, fuel hikes

According to the National Treasury’s budget review, consumption expenditure grew by 1% in the first half of 2019 compared with the corresponding period of 2018.

“Although household spending remains the main support for growth, spending on non-essential items has fallen dramatically due to rising unemployment, successive fuel price hikes and tax increases.

“Retailers are responding by keeping prices low and margins tight.”

The National Treasury said a mild acceleration in consumption is forecast over the next three years as employment and income growth are expected to recover only gradually.

“Inflation pressures have been subdued in 2019, with inflation averaging 4.3% from January to August, mainly due to weak demand.

Finance Minister sets tougher conditions for Eskom cash support

Finance Minister Tito Mboweni says going forward, any cash injection aimed at supporting the cash flow for embattled power utility Eskom will be in a form of loans, and not equity.

In a strongly-worded announcement during his Medium-Term Budget Policy Speech (MTBPS) on Wednesday, Mboweni said it can no longer be business as usual at Eskom and that the power utility’s power plants and equipment need to be run better.

He said this a day after Public Enterprises Minister Pravin Gordhan released a Special Paper that is aimed at providing a roadmap for electricity generation and distribution at Eskom.

“Going forward, new cash flow support will no longer be equity but will be in the form of loans.

“Once I am convinced that the Eskom board and management have made an irrevocable commitment to implement government’s decisions and there is enough progress, we will negotiate the appropriate size of debt relief.” concluded Mboweni.