The transition to democracy in 1994 may seem like a piece of cake compared to the mountain SA has to climb as a result of the lockdown.
If there is any solace in this, accountants will play a crucial role in guiding the economy back to its feet. But accountants will need to reskill as business turnaround and tax specialists, rather than bookkeepers and compliance box tickers.
Finance minister Tito Mboweni has announced a R2 trillion-plus budget to pull SA out of the mire.
In a Supplemetary Budget released on Wednesday, 24 June 2020, he gave us a better picture of the weakening state of tax collections: SA Revenue Services (Sars) collected R142 billion in the first two months of the current fiscal year, R35.3 billion less than originally forecast. Extrapolating this, the fiscus will be about R300 billion short for the full year.
Part of this revision is because the measures announced earlier this year give taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion.
This adds up to a budget deficit of 15.7% for the current fiscal year, equivalent to R761 billion. That’s a shock few South Africans – Tito included – envisaged just a few months ago.
As expected, national debt will balloon to nearly R4 trillion, or 81.8% of GDP. This will have to be covered by borrowing $7 billion from international finance institutions. National debt will stabilise at 87.4% of GDP in 2023/24.
To support the most vulnerable, R41 billion has been allocated for social relief grants.
R100 billion to address the jobs emergency
Mboweni announced R100 billion as part of an Economic Support Package which will include a repurposed public employment programme and a Presidential Youth Employment Intervention.
Revised loan guarantee scheme
Of the R200 billion originally set aside as government-guaranteed lending for businesses with a turnover of less than R300 million a year – but will now be made available to businesses with turnovers exceeding R300 million a year. So far just R10 billion has been lent under this scheme, partly due to the technical and legal issues involved in loan applications, which are now smoothed out.
The revised loan guarantee scheme also includes a business restart option, for businesses who need support to get up and going after the lockdown.
Saiba’s view of the budget
Nicolaas Van Wyk, CEO of the SA Institute of Business Accountants (Saiba) says it’s depressing to hear the minister state that of every rand we pay in tax, 21 cents goes to paying the interest on our past debts. “That’s just the interest. To make it personal for workers and entrepreneurs, it’s the same as saying we spend 2,5 months of every year working for Western and Asian big banks and international financiers.
“Debt is becoming a new form of slavery that will prevent Africa from meeting its developmental goals.
“This will require that we utilise and have access to the ideas and sweat of all our people,” says van Wyk. “President Ramaphosa will have to unite SA and lead the way in fighting racial division. We can’t afford to play politics in the light of the upcoming elections. Politics must now take a back seat and allow the Rainbow Nation to show its worth. We need all hands on deck, or else we all will die of hunger. We would like to see Parliament reduce in size as a message to the public sector that government is serious in reducing the public sector wage bill.
Van Wyk says Saiba supports the additional R19.6-billion allocated to the Presidential Youth Employment Intervention, and that some of these funds should be allocated to developing young black accountants. “This will be crucial to making sure SMEs get the support they need. Accountants will also play a safeguarding and advisory role in the R100 billion jobs fund and the R200 billion in government-guaranteed loans. With regard the latter, we support the initiative to lower the entry requirements for these loans so that startups are also supported.
“It seems we played all our cards in fighting state capture and Covid-19. Our war against the looting and the initiatives to address the effects of the lockdown may have only delivered a Pyrrhic victory. We spent everything we had on these two events. What happens next year if we experience a natural disaster, strikes, protest or, God forbid, another virus? We have nothing left. These are sobering thoughts, but we hope this leads to a new sense of urgency among politicians and in the public sector that will focus on service delivery rather than politics and red tape. We must demand freedom to do business so that we can save SA.”
Van Wyk adds that Saiba supports the initiative to reboot the economy by spending massively on infrastructure. “For us the most important is railway infrastructure. All our people should be able to travel to all parts of SA in a convenient and cheap transport mode. This should extend to railroads linking all the great African states. China is talking about a new silk road. Centering South Africa as the hub of economic development in Africa and developing a free trade zone from Cape Town to Cairo should also find its way into the budget and NDP.”
Tito’s warning on national debt
Mboweni warned that if the country remains passive, economic growth will stagnate. “Our debt will spiral inexorably upwards and debt‐service costs will crowd out public spending on education and other policy priorities. We already spend as much on debt‐service cost as we do on Health in this financial year. Eventually the gains of the democratic era would be lost.
“The wide gate opens to a path of bankruptcy. A sovereign debt crisis is when a country can no longer pay back the interest or principal on its borrowings. We are still some way from that. But if we do not act now, we will shortly get there.
“The results are devastating. Interest rates sky‐rocket. Spending has to stop. Inflation takes hold and people grow much poorer. This is what happened to Germany in the 1920s, to Argentina and to Zimbabwe in the early 2000s, and to Greece in the past few years. Argentina had its ships attached. Greek civil servants and pensioners had their salaries and pensions slashed. In short it is doom and despair. We have been there before: in its closing days, the Apartheid government had to declare a debt standstill.”
The Medium Term Expenditure Framework (MTEF) which will be released later this year will be guided by the principles of zero‐based budgeting “which will be applied as a series of overlapping evaluation exercises targeted at large programmes.” The current Supplementary Budget is a step towards this new approach of zero-based budgeting which will allow government to attack costs in a way that was previously inconceivable.
Rebooting the economy through infrastructure programme
A crucial pillar in Mboweni’s plan to reboot the economy is to spend massively on infrastructure: bridges, roads, railways and ports.
“Infrastructure will be the flywheel by which we grow the economy. Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs. Our efforts to reduce consumption expenditure will also change the composition of spending in the direction of investment.”
President Cyril Ramaphosa this week hosted a Sustainable Infrastructure Development Symposium, drawing in sector specialists, technical and financial structuring experts and policy departments that have considered 177 infrastructure projects across public and private sectors.
The government has already committed R100 billion over ten years toward the Infrastructure Fund, which will be supplemented with projects jointly identified with the Development Bank of Southern Africa.
“But our enormous investment needs cannot be delivered by government alone. The private sector accounts for most of the investment spending in the economy. We must reduce long‐term interest rates to allow business and households to drive faster economic growth,” said Mboweni.
Van Wyk added “We support the initiative to reboot the economy by spending massively on infrastructure. For us the most important is railways. All our people should be able to travel to all parts of South Africa in a convenient and cheap mode of transport. This should extend to railroads linking all the great African states. China is talking about a new silk road, Centering South Africa as the hub of economic development in Africa and driving free trade zone from Cape Town to Cairo should also find its way into the budget and NDP. “