Wednesday, 24 June 2020
Cape Town: Finance Minister Tito Mboweni has announced a zero-budgeting approach that will see government cutting spending on programmes it can no longer afford.
Mboweni said this when he tabled the Supplementary Budget Review at the National Assembly on Wednesday. The budget was necessitated by President Cyril Ramaphosa’s announcement that government would spend R500 billion to support the economy’s resuscitation following the outbreak of novel Coronavirus.
He said Cabinet, under the leadership and guidance of President Ramaphosa, will narrow the deficit and stabilise debt at 87.4% of GDP by 2023/24.
“The Medium-Term Expenditure Framework process will be guided by the principles of zero‐based budgeting which will be applied as a series of overlapping evaluation exercises targeted at large programmes.
The Minister also said that tax measures of R40 billion over the next four years will also be required.
Government will announce details to these tax proposals in the 2021 Budget.
“Government will also be allocating R3 billion to recapitalise the Land Bank. This Bank holds 29% of South Africa’s agricultural debt. The National Treasury is supporting the Land Bank.
Economy expected to contract by 7.2% this year
Finance Minister Tito Mboweni says as a result of the COVID-19 pandemic, the country’s economy is projected to contract by 7.2% in 2020.
“This is the largest contraction in nearly 90 years. Inflation will likely register 3% in 2020, in line with the outcome of this morning.
“Commodity price increases and a weaker oil price have softened the blow, but as a small open economy reliant on exports, we have been hit hard by both the collapse in global demand and the restrictions to economic activity,” he said.
The February budget forecast growth of 0.9% for 2020.
“COVID‐19 has turned the global economy upside down. In the February Budget, we expected that the global economy would expand by 3.3% in 2020. We now expect a global contraction of 5.2% this year. This will bring about the broadest collapse in per capita incomes since 1870,” Mboweni said.
Budget share revised
The revision of the budget will also see theprovincial share decrease from R649 billion to R645 billion.
“[The] local government share increases from R133 billion to R140 billion,” he said.
Local government, he said, is at the heart of South Africa’s response to the COVID-19 pandemic.
“Accordingly, an additional R11 billion is allocated to local government through the equitable share. A further R9 billion will be reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport,” he said.
Municipalities are expected to adjust their budgets to take into account the sharp decline in revenue as a result of the pandemic.
“We urge communities to hold councils accountable for the spending of COVID‐19 funds. National Treasury will also monitor the spending through monthly and quarterly reports,” he said.
Additionally, the government in March unveiled a R500 billion COVID-19 fiscal package for economic relief.
Elaborating on this, the Minister said, of this, R190 billion in main budget spending – of which R145 billion is allocated immediately – was to protect lives and support livelihoods. Of this R70 billion, was for tax policy measures while a R200 billion loan guarantee scheme was availed to support short-term economic activity.
“In addition, the Reserve Bank has reduced interest rates and provided additional support to the bond market, financial-sector regulations have been eased to support the flow of credit to households and businesses, and commercial banks have introduced temporary payment holidays,” said the Minister.
R100 billion set aside to respond to COVID-19 jobs challenge
Finance Minister Tito Mboweni says the National Treasury has set aside R100 billion to support government’s response to job creation.
His announcement came a day after Statistics SA announced that unemployment has gone up to 30.1% in the first quarter of the year.
“The figures from yesterday show that unemployment is our single greatest challenge.
“The Economic Support Package sets aside R100 billion for a multi‐year, comprehensive response to our jobs emergency.
“The President’s job creation and protection initiative will be rolled out over the medium‐term [over the next three years],” he said.
Mboweni said this will include a repurposed public employment programme and a Presidential Youth Employment Intervention.
“In this year, an amount of R6.1 billion is already allocated, and a further R19.6 billion has been set aside mainly for this purpose.”
UIF provides R23 billion in COVID-19 relief to 4.7 million workers
Mboweni said, meanwhile, that as of mid‐June, the Unemployment Insurance Fund (UIF) has provided R23 billion in COVID‐19 relief to over 4.7 million workers affected by the pandemic.
“This has required a huge upgrade and repurposing of the UIF system to deal with the increase in mostly online applications, and to build in protections against fraud.
“We thank all involved for the upgrade, there were many individuals from the private and NGO sector who volunteered their time to assist the UIF.
Over 18 million receive temporary COVID‐19 grant
Mboweni said, meanwhile, that over 18 million South Africans received relief through the temporary COVID-19 grant.
“The roll out of the short‐term Special Relief of Distress grant will temporarily support those without an income. An additional 1.5 million people have received these already.
“To support vulnerable households an additional allocation of R25.5 billion to the Social Development department is proposed, for a total relief package of R41 billion. All these measures will come to an end in October.”
Projects postponed, funds redirected to COVID-19
The document reveals that spending was adjusted by removing funds underspent due to delays caused by the lockdown from the baselines of affected departments.
Allocations were also being suspended for capital and other departmental projects, which could be delayed or rescheduled to 2021/22 or later.
Programmes with a history of poor performance and/or slow spending have also suffered the unfortunate fate.
“The net in-year suspension of R10.8 billion to the grants is temporary and only to provide emergency funds for the pandemic response.
“Most of the main budget spending revisions by economic classification are in the transfers category, with R20 billion from transfers to provinces for the repurposing of the provincial equitable share, as well as suspensions in provincial and local conditional grants,” said Treasury.
These resources are mainly allocated to provincial health and education interventions, as well as providing funding for increased social payments to vulnerable households.
In the current year, reveals the report, R40 billion will be drawn down from social security funds’ cash surpluses to provide wage support to vulnerable employees due to the pandemic.
“Public entities, social security funds and provinces are projected to have a combined cash deficit in 2020/21. This, together with the widening main budget deficit, results in the consolidated budget deficit more than doubling to a projected 15.7% of GDP in the current year, compared with the 2020 Budget estimate of 6.8%,” the report adds.
Treasury expects a R300 billion tax revenue shortfall
Gross tax revenue collected during the first two months of 2020/21 was R142 billion, compared to the initial forecast of R177.3 billion for the same period.
“Put another way – we are already R35.3 billion behind on our 2020/21 target. As a consequence, gross tax revenue for the 2020/21 fiscal year is revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by over R300 billion,” he said.
Mboweni said part of the revision was because the measures announced earlier this year give taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion.
“These proposals are contained in the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill that I table today.
“Taken together the measures and adjustments we present translate into a consolidated budget deficit of R761.7 billion, or 15.7% of GDP in 2020/21. This is compared to the deficit of R370.5 billion, or 6.8% of GDP projected in February. This increase is mainly due to the revised revenue projections and pay‐outs from the Unemployment Insurance Fund.
“The narrower measure, known as the main budget deficit, is projected to be 14.6% of GDP,” he said.
Proposals to bolster revenue collection
In a media briefing following the Minister’s speech, National Treasury Director-General Dondo Mogajane said in response to the rising budget deficit, Cabinet approved that an “active approach” be taken to bolster revenue collection.
This, he said, would also deal with, among other things, issues of tax avoidance.
In the active scenario, government stabilises debt through a combination of reforms that boost economic growth and measures to increase revenue collection and lower expenditure.
“Cabinet has adopted the active approach. It has endorsed the target of a primary surplus by 2023/24, meaning revenue will exceed non-interest expenditure. This will require spending reductions and revenue adjustments amounting to approximately R250 billion over the next two years.
“These measures require difficult choices that will affect the economy and distribution of public resources.”
Government to borrow $7 billion as debt rises
Also, measures and reforms would need to be implemented to narrow public debt post the pandemic, including a restrain on spending and improving revenue collection.
He announced a projected total consolidated budget spending, including debt service costs, that will exceed R2 trillion for the first time ever.
“Our early projection is that gross national debt will be close to R4 trillion, or 81.8 percent of GDP by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6 percent of GDP projected in February.
“Without external support, these borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else. For this reason, we need to access new sources of funding.
“Government intends to borrow about US$7 billion from international finance institutions to support the pandemic response. We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back,” he said.
“But government’s weak fiscal position going into the crisis means that it cannot afford to fully offset the effects of the pandemic,” the National Treasury said.
Spending restraint, improved revenue collection to stabilise debt
The National Treasury said in its Supplementary Budget Review that narrowing the budget deficit and stabilising the debt-to-GDP ratio require continued spending restraint, economic measures to boost long-term growth and reforms to state-owned companies to reduce their reliance on public funds.
“Additional tax revenue should come primarily from improved tax collection as enforcement is strengthened to enhance compliance, alongside other revenue measures.
“In the long term, South Africa needs sustainable public finances to support highly redistributive spending on education, healthcare and social welfare. By increasing confidence and investment, fiscal sustainability promotes,” the National Treasury said.
R21.5bn set aside for COVID-19 health, frontline services
“[The budget] also proposes a further allocation of R12.6 billion to services at the frontline of our response to the pandemic. Allocations have been informed by epidemiological modelling, a national health sector COVID‐19 cost model and our experiences over the past 100 days,” the Minister said.
This money, Mboweni said, partly supports increased screening and testing, allowing government to further open the economy.
“We have successfully increased our COVID‐19 bed capacity to above 27 000; identified 400 quarantine sites with a capacity of around 36 000 beds across the country and deployed nearly 50 000 community health care workers to screen millions of South Africans,” said the Minister.
The country has already tested over 1.3 million people.
Provinces, reveals the budget, will add at least R5 billion for the education catch‐up plan, social welfare support for communities and provision of quarantine sites by Public Works Departments and responses in other sectors.
The Minister saluted healthcare and essential service workers for their bravery in leading the fight.
Tariffs have been agreed with private hospitals to supplement public sector capacity.
Additionally, the President-initiated Solidarity Fund has augmented government’s efforts to procure medical and personal protective equipment.
“We thank all those who have made much needed contributions to the fund. These examples show that working together with the private sector with a common purpose, we can get stuff done. We will use these lessons to re‐energise public‐private partnerships.” he said.