The mini-budget presented on Wednesday was a mixed bag of hope about economic growth, a depressing bailout for SAA and an update on the Covid-19 relief package.
So you’ve heard all about the Medium Term Budget Policy Statement, also known as the mini-budget, that was announced by finance minister Tito Mboweni on Wednesday. You’ve slogged through all the jargon and listened to all the experts – but if you’re being honest, it’s still a bit blurry.
We don’t blame you. Understanding SA’s economy causes headaches for even the best financial boffins. Not to worry, though: we’ve put together this simple guide about the mini-budget, and why it is important.
The Medium Term Budget: what now?
The Medium Term Budget Policy Statement takes place in between the real budget speeches, which typically happen each February. Those big speeches are when the government announces how it is going to slice and dice the national financial pie. Government departments are allocated their money for the year, and general financial planning happens.
The MTBPS is kind of an update on that budget; it includes any changes that need to be made to account for new financial issues that have arisen during the year. So, it isn’t quite a new budget. (Business Day columnist Peter Bruce wryly called it “a sort of gentlemen’s club conversation about what might happen in future”.)
Of course, 2020 couldn’t just leave us with two budget speeches in a year; it had to be its extra self and throw in a third in June because of Covid-19. At the time, with South Africa’s piggy bank looking emptier than the garlic patch at would-be chef Mboweni’s abode, the finance minister announced budget cuts so strict that analysts warned they would severely hamper service delivery. Education infrastructure, for example, was severely cut back.
Cut to October, and Mboweni has vowed to be really strict about SA’s spending habits, emphasising that there can be no “slippage” as he attempts to do this. But he has cut spending a little less than in June, and says there is some good news around the corner.
Here are the highlights:
The big picture
While the economy has all but flatlined thanks to Covid-19 and the lockdown, Mboweni says it should start seeing growth soon. That means more jobs, more people working and more productivity in the country generally. And that means one thing: more money. And more money means we can pull more people out of poverty.
Mboweni said the government expects a “strong recovery” in the next quarter. SA’s economy will grow by 3.3% in 2021, he said, because of a phenomenon known as the “base effect”. This is quite a complex economic occurrence, when an economy bounces back sharply after a steep contraction. Mboweni says the economy will then grow by 1.7% in 2022 and 1.5% in 2023.
Globally, a sharp and hopefully short recession is underway. The global picture is expected to improve next year – and there’s good news for us down south, since developing countries like ours are predicted to grow more than developed countries.
Base effect or not, the government needs to stop spending so much money if it is going to have any chance at recovery, Mboweni said. SA’s debt levels continue to rise annually: in the next five years the ratio of debt to gross domestic product (that’s the amount of goods and services we produce every year) is set to reach a stratospheric 95%. If you have pearls, now is a good time to clutch them.
And so, National Treasury is cutting back on government expenditure big time, though not, as we explained earlier, as much as it previously planned to.
Who, or what, is going to get the chop? To your great relief no doubt, dear reader, we’ve resisted the urge to make another joke about Mboweni’s infamous cooking skills again (which he likes to show off on Twitter, with dismal results). Instead, we’ll just tell you the truth: if you’re a teacher, policeman or nurse employed by the government, it’s your salary. Public servants will not be getting increases any time soon and while public sector unions have said this should apply to all senior managers across the state as well as ordinary workers, it’s not clear whether this will happen.
Expect a major blowout between the unions and the government soon over this issue.
That infrastructure fund
President Cyril Ramaphosa recently announced that a huge infrastructure programme, located in his office, was under way. It is the centrepiece of the government’s post-Covid recovery plan. Mboweni gave an update on what the programme is up to on Wednesday.
Over the next ten years, government will spend R20 billion on a social housing programme.
There will also be a student housing build programme that will house 300 000 people a year, and cost roughly R96 billion to implement. The fund will also see the extension of various hospitals and the construction of some new ones, as well as 12 more harbours around the country.
What happened to the Covid-19 relief funds?
We thought you might ask. And apparently, so did Mboweni. For those who weren’t paying attention: remember that R500bn plan Ramaphosa announced during the hard lockdown to help the country through the pandemic?
Well, it turns out the money is indeed being spent – and on Covid-19 relief, even!
Here’s some of what has happened to the money:
– More than R30bn has been set aside for Covid-19 frontline health and other health services
– Over R50bn has been spent on supporting vulnerable households
– More than R40bn has been spent on wage protection through the Unemployment Insurance Fund
– Around R100bn has been reserved for job creation initiatives spread over three years
– R200bn for a credit guarantee scheme
– R20bn went to municipalities to assist them with Covid-19 related activities
– R70bn has gone towards emergency tax measures
The bad news…
Sigh. Just when you thought the government had stopped talking left and walking right… it is about to bail out failing airline South African Airways (SAA) to the tune of R10.5bn. This was the big number to watch yesterday; the government had previously said it would bail out SAA, but it wasn’t clear if National Treasury and Mboweni would be willing to stump up the money. Mboweni has previously made it clear that he doesn’t think state owned enterprises like SAA should keep getting government bailouts when they fail.
Now that we know SAA will be bailed out, where will government find the money? Directly from other government departments and entities, Mboweni said. On the one hand, this is good – it means the government isn’t going to borrow more to save SAA. But it also raises questions about what this will mean for those departments and how they deliver services.
Anything else we should know?
To improve electricity provision, government is working towards letting municipalities buy electricity from sources other than Eskom. Sadly, tax increases could be on the horizon, but we’ll know more when Mboweni presents his next budget, in February 2021.