27 Oct 2022
The Medium-Term Budget Policy Statement (“MTBPS”) was tabled in parliament yesterday by Finance Minister Enoch Godongwana. The 2022 MTBPS aims to reduce fiscal risks in the short term, narrow the budget deficit and stabilise debt. It also proposes measures to enhance economic growth and restore funding for infrastructure and service delivery programmes.
Despite some positive undertones to the MTBPS (fiscal discipline and narrowing of budget deficit) the South African overall economic outlook remains weak with growth expected to slow over the next three years. At the same time the budget failed to provide detail around Eskom’s debt restructuring and little relief to the ongoing energy crisis.
Some of the highlights of the 2022 Medium-Term Budget Policy Statement:
Better-than-expected revenue collection from companies and individuals has boosted South Africa’s public finances, with the gross tax revenue estimate revised up by R83.5-billion, to R1.68-trillion. Tax revenues are expected to increase to R2.04-trillion, or 25.4% of GDP, by 2025/26, from R1.86-trillion in the current 2022/23 financial year. The consolidated budget deficit is seen narrowing from 4.9% of GDP in 2022/23 to 3.2% of GDP in 2025/26. Along the way, in 2023/24, a primary budget surplus of 0.7% of GDP is expected, which would be the first such surplus in 15 years.
Consolidated government spending is expected to increase from R2.21-trillion in 2022/23 to R2.48-trillion in 2025/26, growing by an annual average rate of 4%. The government also plans to increase infrastructure budgets. Spending on building and other fixed structures is projected to increase from R66.7-billion in 2022/23 to R112.5-billion by 2025/26, at an annual average of 19% over the medium term. The government is allocating R30-billion to Denel, Sanral and Transnet in the current year. The statement notes that the Land Bank remains “in financial distress” and R5-billion remains in the contingency reserve in 2022/23 as part of the funding provided for it in the previous budget. There are plans to provide debt relief to Eskom to address the utility’s liquidity challenges. This includes taking over a portion of its close-to R400-billion debt, but it is still in talks with Eskom’s lenders about how this debt transfer will work. The Covid-19 social relief of distress grant has been extended by one year in the absence of any decision on a Basic Income Grant that civil society has vocally lobbied for. No final decision has been made about the permanent replacement of the SRD grant, which is currently paid to 7.4 million people. With respect to civil servant wage hikes, government plans to unilaterally introduce a 3% wage increase in the public service by invoking section 5 of the Public Service Act, and Treasury confirmed on Wednesday that it has not budgeted for more than that. Cosatu wants a 10% increase.
Treasury has downgraded South Africa’s expected economic growth rate from 2.1% to 1.9% for this year due to load shedding and weaker exports with real GDP growth forecast to average 1.6% over the next three years. With respect to tax receipts going forward, government expects that most of the windfall tax receipts from higher commodity prices will fall away over the next two years but that tax revenues are still expected to increase thanks to “improvements in efficiencies” at the South African Revenue Service and a more broad-based corporate tax recovery.
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