Next week finance minister Tito Mboweni will be delivering the budget policy statement, which becomes a more daunting prospect each year, writes Ian Matthews‚ head of business development and special projects at Bravura‚ an independent investment banking firm specialising in corporate finance and structured solutions‚ in Sunday Times.
In SA’s shrinking economy, where unemployment is at a 14-year high of 27.7% (or 37.2% if the definition of unemployed is expanded to include those too discouraged to look for work), and GDP has been revised downward to 1.2% by the Reserve Bank (or 1% according to predictions by the World Bank), there is very little wiggle room for fiscal policy to support growth.
In light of this the question is: which eggs must be broken by the MTBPS 2018 to make the omelette?
State-owned enterprise bailouts?
Government has significant exposure on state-owned enterprise (SoE) guarantees and must be prepared to provide further bailouts to prevent loan defaults. This presents a critical challenge given that government can ill afford to increase its current debt burden of R246bn which is equivalent to over 50% of GDP.
Treasury has denied that it has approved a proposed bailout package of R59bn for SoEs. It will be hard-pressed to choose which SoEs should be bailed out given widespread mismanagement and wasteful and irregular expenditure. If any further evidence was needed to support this‚ it could be found last week Friday when 11 government departments and entities missed the statutory deadline to table their 2017/18 annual reports in parliament.
Two months ago both SA Express and arms manufacturer Denel joined the ranks of SoEs such as SAA‚ Sanral‚ Sapo‚ the SABC and Eskom looking for bailouts. Both are already reliant on government guarantees to remain operational.
Cash-strapped Denel — whose government-guaranteed debt of R2.7bn was due to be refinanced by the end of September — awaits approval of an additional R1bn guarantee it has requested from government‚ which remains under consideration until next week’s budget policy statement. The lack of further capital puts its cash flow at risk. Domestic and regional airline SA Express requires a minimum bailout of R1.74bn and hopes for its government-backed loans to be converted into equity.
These two will have to line up behind the likes of Eskom‚ SA’s biggest recipient of state loan guarantees which currently has R399bn of debt and is‚ according to the Goldman Sachs Group‚ “the single biggest risk to the country’s economy.”
Tax — between a rock and hard place
While the MTBPS is not expected to make any material changes to the tax regime‚ it could provide an indication of changes to come in 2019.
In February this year‚ then finance minister Malusi Gigaba projected that the SA Revenue Service (Sars) would collect R1.345-trillion in taxes to ensure that the budget balances. Two months later his replacement‚ Nhlanhla Nene‚ announced that Sars had fallen short by R700m in the tax revenue collection target for 2017.