If anything should raise alarms about the latest budget it is this graph from the 2021/22 Budget Review:
The feeble SA economy is expected to grow 3.3% this year, then fall to 2.2% in 2022 and 1.6% in 2023.
Compare this with the major economies of the world: the US is expecting average growth of 2.6% a year for the next five years; the EU expects growth of 3.7% in 2021 and 3.9% in 2022.
China expects to grow 8.1% in 2021 and 5.6% in 2022.
Global growth is set to rise by 5.5% in 2021 and 4.2% in 2022.
SA is falling further and further away from any ability to revive the economy (outside of a serendipitous recovery in the mining sector, which rescued our balance of payments in 2020).
This latest budget seems directionless and somewhat desperate.
Yes, there are huge spending problems to solve, such as Covid (R9 billion this year) and social programmes to alleviate the loss of jobs and incomes reported by millions of South Africans.
Another positive for the Budget is that corporate income tax will be levied at 27% (previously 28%) from 1 April 2021 to bring us more into line with the international average of 23.6%.
And there have been no increased in VAT or personal income tax – inflation and fiscal drag will do the heavy lifting here.
What about the long-awaited infrastructure spending programme?
Public sector expenditure on infrastructure is to increase by 20.6% to R226.1 billion in 2020/21 compared to 2019/20. Public-sector infrastructure spending over the next three years is estimated at R791.2 billion, with nearly 80% of this spending coming from state-owned companies.
That’s a welcome move, and will help revive the construction and engineering sectors.
There is also a plan to partner with the private sector and international development agencies, via the Infrastructure Fund. But just R18 billion will come from the government side. “The fund has begun work on three projects in student housing, digital infrastructure and water infrastructure. But fiscal resources are not enough: bold reforms are needed to lift private-sector investment,” says the 2021 Budget Review.
Finance Minister Tito Mboweni’s promise to reduce public spending is welcome, but several years too late. In the last fiscal year, public wages swallowed 47% of revenue, up from 41% the year before. The plan is to moderate this to growth of just 1.2% a year in the medium term. That’s just not enough to bring order to the state finances.
Zero-based budgeting will be implemented at the Department of Public Enterprises and the National Treasury, and then rolled out to other departments.
Here are some of the highlights of the Budget:
- The budget deficit has been revised to 14 per cent of GDP in 2020/21 in response to the spending and economic pressures of the COVID-19 pandemic.
- Gross debt has increased from 65.6 per cent to 80.3 per cent of GDP for the year 2020/21.
- The 2021 Budget proposes measures to narrow the main budget primary deficit from 7.5 per cent of GDP in the current year to 0.8 per cent in 2023/24.
- The proposed fiscal framework will stabilise debt at 88.9 per cent of GDP in 2025/26.
- Government will roll out a free mass COVID-19 vaccination campaign for which R9 billion has been allocated in the medium term.
- Over the medium term, debt-service costs are expected to average 20.9 per cent of gross tax revenue.
- Total consolidated spending amounts to R2 trillion each year over the medium term.
- The bulk of the spending is allocated to learning and culture (R402.9 billion), social development (R335.2 billion) and health (R248.8 billion) in 2021/22.
- The fastest-growing functions over the medium term are economic development, community development and general public services.
- The majority of funding for new and urgent priorities is provided through reprioritisation and reallocation of existing baselines.
- To support economic recovery, government will not raise any additional tax revenue in this budget.
- The personal income tax brackets and rebates will increase above the inflation rate of 4 per cent.
- Government will increase excise duties on alcohol and tobacco by 8 per cent for 2021/22.
- Inflation-related increases of 15c/litre and 11c/litre will be implemented for the general fuel levy and the RAF levy, respectively, with effect from 7 April 2021.
- The UIF contribution ceiling will be set at R17 711.58 per month from 1 March 2021.