Wednesday, 24 October 2018

Cape Town: South Africa’s growth outlook has been revised downwards to 0.7% in 2018, said National Treasury on Wednesday.

Growth outlook revised downwards

“The National Treasury forecasts that GDP growth will slow to 0.7% in 2018, down from 1.3% last year, before rising to 1.7% in 2019 and 2.1% in 2020,” said Treasury as Finance Minister Tito Mboweni tabled his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament.

Treasury said that the country’s economic outlook is weaker than projected in the February 2018 Budget, which forecast 1.5% and 1.8% Gross Domestic Product (GDP) growth in 2018 and 2019, respectively.

“Headline inflation is projected to average 4.9% in 2018, rising to 5.4% by 2021 as food price inflation returns to its historic average,” it said.

Budget deficit widens to 4.3%

The budget deficit for the 2018/19 financial year is expected to widen to 4.3% of the Gross Domestic Product (GDP) – which is higher than the 2018 Budget estimate of 3.8%. According to the National Treasury’s Medium Term Budget Policy Statement, this is mainly as a result of tax revenue shortfalls.

The National Treasury said the primary balance – the difference between revenue and non-interest spending – narrows over time, stabilising at 0.2% of the GDP in 2021/22.

Government’s debt management strategy

The National Treasury said government’s debt management strategy is informed by strategic risk benchmarks for interest, inflation, the currency and refinancing.

Fluctuations in inflation, interest and exchange rates since the 2018 Budget also affected debt.

“The weaker rand accounts for about 70% of the R47.6 billion upward revision to gross loan debt in the current year. Debt is expected to stabilise at 59.6% of GDP in 2023/24 – at a higher level and a year later than projected in the 2018 Budget.

“Net debt – gross loan debt minus cash balances – stabilises at 56.5% of GDP in 2025/26.”

Infrastructure fund to be fleshed out in February budget

The specifics of the infrastructure fund, announced as part of South Africa’s stimulus package, will be announced in the February 2019 Budget.

“The expenditure ceiling will be maintained for the next two years and is set to grow at 1.5% in real terms in 2021/22 — largely in line with average real GDP growth over the past decade.

DPSA to help departments contain wage budgets

The National Treasury said, meanwhile, that the Department of Public Service and Administration will assist departments facing increased wage cost pressures.

This comes as recently signed three year public service wage agreement – comprising a cost-of-living adjustment and an extension of the housing allowance to cover spouses – pushed the wage costs to R242.7 billion over the next three years, exceeding the R212.5 billion budgeted for salary increases and other conditions of service.

“Government’s current wage bill accounts for about 35% of consolidated spending. No additional funding is available over the 2019 MTEF period. Instead, departments need to fund shortfalls by adjusting within their compensation baselines.

“This means increasing efficiency, and carefully managing overtime and performance incentives,” the National Treasury said.

Treasury projects R27.4bn shortfall

National Treasury says South Africa is at a crossroads, as revenue is projected to fall short of the budgeted estimate by R27.4 billion this year.

“Revenue collection for the first six months of 2018/19 grew by 10.7% compared with the same period last year. However, the technical recession experienced in the first half of the year has begun to feed through to revenue collection, which has slowed.

“Treasury said a backlog of VAT refunds at SARS and an underestimation of refunds due has led to an overly optimistic view of revenue growth.

“Public testimony at the Nugent Commission of Inquiry has underlined concerns about severe governance and administrative weaknesses within SARS over the past several years. The commission has submitted an interim report to the President, with the final report due on 30 November 2018. Government is committed to tackling concerns related to SARS in an open manner. Ensuring transparency in tax administration will help to rebuild taxpayer confidence and compliance,” Treasury said.

R500m to recruit health professionals, buy beds and linen
Government will reprioritise funds to make R350 million available to recruit new health professionals, says Finance Minister Tito Mboweni.

“Access to health care services is enshrined in our Constitution and in our Bill of Rights. We will continue to work closely with the national Department of Health and other role players to ensure that the gradual phased implementation of the National Health Insurance is adequately financed. We are immediately reprioritising R350 million to recruit in excess of 2000 health professionals into public health facilities,” he said.

Mboweni said a further reprioritisation of funds will avail R150 million to be used to purchase beds and linen for hospitals where the need is more dire. These two interventions will build on the Presidential Health Summit convened last weekend, which has brought a new focus to improving the quality of healthcare.

The National Treasury said the construction of a 488-bed academic hospital in Limpopo is expected to begin in 2019/20.

Sanitary pads, white bread flour to be added to VAT free items

Finance Minister Tito Mboweni said government proposes that come April 2019, three items, including sanitary pads, will be added to the zero-rated list. Earlier this year, government increased value-added tax (VAT) from 14% to 15%.

An independent panel of experts to review the list of 19 zero-rated food products was set up to consider how best government could mitigate the impact of the VAT increase on poor and indigent households.

The panel of experts has since released the report and recommended that six items be added onto the list of zero-rated items.

The Minister received 3 299 tweets from Twitter users, with one of them, Tintsi Ngwenya, saying, “Sanitary pads should be tax free”.

Mboweni said from 1 April 2019, sanitary pads, bread flour and cake flour will be zero-rated.

Carbon tax postponed to 1 June 2019

The Minister said, meanwhile, that after hearing the concerns of business and labour during Parliamentary hearings, the implementation of the Carbon Tax has been postponed by six months.

“The carbon budgeting system and the carbon tax will be aligned. This is 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 this will be postponed to 1 June 2019.”

Corrupt officials in Giyani Water Project to feel the heat

Finance Minister Tito Mboweni has instructed his department to work with the Department of Water and Sanitation to take action against officials fingered for corruption in the Giyani water crisis.

The Minister made the announcement when he tabled his maiden Medium Term Budget Policy Statement in the National Assembly on Tuesday.

The Giyani Water Project, which has returned to the spotlight due to media reports, has been plagued with malfeasance.

“It is a cesspool of corruption. The challenges range from a complete disregard for supply chain rules to poor contract management, resulting in irregular expenditure. It is clear that a new delivery and financing model is required to provide water services to communities,” he said. The President has informed me that he will go to Giyani to see exactly what has happened and what needs to be done,” he said.

Urgent intervention in the Vaal River crisis

The Minister said, meanwhile, government was dealing with the water crisis in the Vaal River System “decisively and urgently”.

“Our immediate focus is to mobilise short-term financing by reprioritising funds and increasing capacity. I have asked the President and the Minister of Defence for the military to assist with engineering and other expertise to resolve the crisis in the Vaal River System.

“I am happy to report that approval has been granted. The generals in charge have already started working on solutions,” he said.

Government dealing with school sanitation

Government is attending to the sanitation issues faced by schools around the country, Finance Minister Tito Mboweni said on Wednesday.

“The largest allocations in the medium-term are for education, health, social development and community development,” said Mboweni as he tabled his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament.

These four areas will receive over 60% of non-interest expenditure.

Mboweni said no child should learn in a school that is unsafe.

Turning his attention to municipal social infrastructure improvement, Mboweni said all South Africans share the pain of poorly performing municipalities, which results in bad roads and unmaintained infrastructure, among others.

He said government is “acutely” aware that some municipalities are facing capacity constraints.

“Municipalities owe more than R23 billion to service providers, mainly Eskom, and water service agencies,” Mboweni said, adding that this was a reflection of weaknesses in governance, fraud and outright corruption.

“The funds lost by municipalities in the collapse of VBS Mutual Bank offer a dramatic illustration of how greed and corruption impacts the achievement of developmental objectives,” he said of the current storm engulfing the mutual bank, which has been placed under curatorship.

The Minister also spoke of the cases where contracts are awarded corruptly and construction costs are inflated.


Fleshing out progress of President Cyril Ramaphosa’s stimulus package announced in September, the MTBPS further announced a framework for financing infrastructure which will be developed.

The MTBPS noted that a decade of poor economic performance and high unemployment has reinforced the urgent need for a comprehensive programme of reforms to change the underlying structure of the economy.

Progress has been made in such areas including that the Department of Telecommunications and Postal Services has gazetted a proposed policy for the licensing of high-demand spectrum.

The communications regulator plans to auction spectrum for 4G services by April 2019, and simultaneously establish a wholesale open-access network to lower the cost of data.

Rebuilding state institutions

On state institutions, government said while the process of rebuilding these is underway with the Judicial Commission of Inquiry into allegations of State Capture among others, challenges remain.

“While the scale of deterioration in the public sector is serious, key institutions established by the Constitution have proven resilient. Parliament, the courts and the Reserve Bank have helped to uncover corruption, with the support of a robust media.”

Treasury also highlighted its efforts to strengthen financial management which include enhancing public finance capacity-building in local government by deploying skilled professionals to manage and recover revenue.

Framework to assist departments in distress
National Treasury will develop a framework to address governance and financial performance for national departments in distress.

“Poor governance, reflected in inefficiency, corruption and financial mismanagement reduces the impact of spending and increases pressure on the budget. Government has begun the process of rebuilding important state institutions.”

These failures, Treasury said, are beginning to be addressed.

Treasury said government projects total expenditure of R5.9 trillion over the 2019 MTEF [medium-term expenditure framework]. Spending will grow by an average of 7.8 % a year, reaching R2.1 trillion in 2021/22. –

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