Budget: A lot of bad news but a little bit of good news for small businesses


The National Treasury’s macroeconomic projections imply that per capita income will continue to stagnate in the years ahead. Unless decisive action is taken to chart a new course, the country could remain caught in a cycle of weak growth, mounting government debt, shrinking budgets and rising unemployment, according to the Medium Term Budget Policy Statement (MTBPS) released today.

According to the statement, as a result of revenue shortfalls, the consolidated budget deficit for 2017/18 is expected to be 4.3 per cent of GDP, compared with a 2017 Budget estimate of 3.1 per cent. The main budget deficit, which determines government’s net borrowing requirement, will be 4.7 per cent of GDP this year.

No new tax measures has been announced, but Gigaba said earlier that tax measures are normally addressed in te main budget speech.

In contrast to projections set out in the last budget, the revised projection is for the deficit to remain at this elevated level over the medium term. On this estimate, gross national debt is projected to continue rising, reaching over 60 per cent of GDP by 2022.

Lenders, alarmed by governance failures, are taking a more active stance. As a result, state-owned companies are having difficulty raising debt, or are forced to refinance debt at higher rates.

Total interest payments by state-owned companies are projected to increase from R49.8 billion in 2016/17 to R69.3 billion by 2019/20. Given the sharp increase in interest commitments, some entities may have insufficient cash to settle their obligations unless immediate reforms are implemented to improve governance and boost profitability.

To offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to R16 billion over the next three years. This leaves government little room to
manoeuvre if risks to the expenditure ceiling materialise. Beyond this, it is likely that some programmes will need to be eliminated, or their funding reduced.

On the other hand, government has issued a R19.1 billion guarantee facility to SAA to ensure the company continues to operate as a going concern. Total recapitalisation of R10 billion will be provided in 2017/18. An amount of R5.2 billion has already been provided, with the remaining R4.8 billion to be transferred by 31 March 2018. These funds will be used for working capital and to settle debt, enabling the airline to reduce its interest expenses.

Other large government guarantees are for:

  • -Eskom (R350 billion), which has been extended from 31 March 2017 to 31 March 2023 because of delays in Eskom’s capital investment programme.
  • -SANRAL with a R38.9 billion guarantee to expand its toll roads portfolio.
  • -A R19.1 billion guarantee facility to SAA to ensure the company continues to operate as a going concern
  • -Arms manufacturer Denel faces refinancing and default risk on government-guaranteed debt amounting to R1.85 billion.
  • -A R25.7 billion guarantee to the Trans-Caledon Tunnel Authority (TCTA).
  • -The Road Accident Fund (RAF) has been insolvent for over 35 years and its total liabilities continue to grow to unsustainable levels. An immediate concern is claim amounts that have been settled in court but not yet paid. These amounted to about R8.5 billion at the end of 2016/17 and are forecast to grow over the medium term. Government has tabled legislation to create an equitable and affordable benefit arrangement to replace the fund. The replacement scheme is expected to significantly reduce costs, but will not eliminate the accumulated liability of the current fund.

Some possible good news as far as small businesses are concerned, is that the Government Technical Advisory Centre has been commissioned to set up a fund to benefit small and
medium enterprises, with a particular focus on start-ups.

The National Treasury is working with the departments of Science and Technology and Small Business Development to establish a new fund for small business and innovation. The fund, which will be allocated R1 billion in 2019/20, will provide wholesale funding to private- and public-sector incubators, which will on-lend to entrepreneurs at the concept stage.

The Department of Science and Technology, with an allocation of R24.8 billion over the medium term, will invest in producing new knowledge, developing human capital, and for research and innovation.

Agri-parks are central locations where smallholder farmers can process their produce and access market networks. Funding for agriparks is provided through the Department of Rural Development and Land Reform. Three agri-parks are nearing completion, and government intends to build one such facility in each of the 44 district municipalities.

Provinces will procure more than R600 billion in goods and services over the next three years. Several provinces are targeting increased procurement from disadvantaged areas.

Work is also under way to license broadband spectrum, optimise government’s asset portfolio, reform the governance of state-owned companies and encourage private-sector participation in public investment programmes. A stronger package of measures to stimulate economic growth is being developed.

Government continues to prioritise the expansion of network infrastructure to support the economy, alongside social infrastructure that serves community needs. The public sector will spend more than R300 billion each year on infrastructure, with about half of this funded directly from the budget.

To sustain economic growth, these measures need to be accompanied by microeconomic reforms that raise productivity and labour absorption, according to the budget statement. These include taking strong steps to transform markets, improve national competitiveness through innovation, break down structural barriers to new economic participants, promote manufacturing development and deconcentrate industries dominated by a few producers.