BUSISIWE MAVUSO: We are expecting a credible budget with news of reforms that will grow our economy
POSTED ON: February 21, 2023 IN by Admin
Finance Minister Enoch Godongwana has earned respect for his commitment to ensuring fiscal and debt sustainability through a fiscal consolidation trajectory. Although we expect him to stick to this policy when he tables his highly anticipated budget speech this week, there will be major risks to expenditure from the expected bailout of Eskom as well as the public sector wage bill. And even though National Treasury (NT) has over R100bn in reserve, this is unlikely to cover the lengthy laundry list of South Africa’s spending priorities.
While Wednesday’s budget is expected to highlight last year’s higher tax revenue and solid nominal GDP growth, this year’s elevated energy crisis is likely to lead to slower growth. The SA Reserve Bank has already lowered its real GDP growth forecast of 1.1% for this year to just 0.3%. NT will follow suit and is likely to forecast 2023 growth at below 1%.
Some fiscal slippage over the medium term is bound to occur in this budget, the alternative being significant expenditure restraint which is unlikely given that a general election is just around the corner. But perhaps this isn’t a bad thing as solving problems like Eskom’s R400bn debt burden will enable it to secure badly needed funds for more diesel for the rest of the financial year, thereby reducing the severity of load-shedding on the economy.
A solution to Eskom’s debt problems will undoubtedly be the most important feature of this budget. In the medium-term budget policy statement (MTBPS), the minister confirmed that Eskom’s performance is the greatest risk to public finances and the economy while indicating that NT would take over a large portion of the power utility’s debt. This will allow Eskom to implement a viable unbundling process and enable it to make funds available for investment in transmission infrastructure. Details of how government will incentivise households to install rooftop solar panels as well as details of tax incentives for businesses regarding solar installations or self-generation will be a welcome addition to this year’s budget.
Managing the public sector wage bill is a major part of NT’s commitment to fiscal consolidation and government knows that it must curtail the wage bill’s growth – which has outpaced CPI since 2008 – to prevent risks to the fiscus. But this is not government’s only concern when it comes to the public sector; it must also commit to ensuring that only ethical and competent individuals are appointed into positions in the public service. While business welcomes the adoption of the National Framework towards the Professionalisation of the Public Sector, the process of ridding the public service of corrupt and incompetent officials must be accelerated. The auditor-general has pointed out that between 2017 and 2022, fruitless and wasteful expenditure to the value of R1.5bn was incurred by 41 national departments. This money could have been put to good use in this budget. For South Africa to become a capable state we need a professional and capable public service.
Funding should be directed towards important reforms, which are vital when it comes to lifting the country’s growth. Reforms are desperately needed to cut red tape for business in respect of cross-border trade or issuing work permits for skilled foreigners and more can – and must – be done in areas that are not within NT’s ambit. We are hoping that these types of reforms – which must have the backing of the entire government – will be included in Minister Godongwana’s speech.
It’s important to note that we didn’t end up where we are today by accident – a large dose of fiscal consolidation was needed to rescue South Africa from the legacy of the state capture years when corruption became rife and government departments and parastatals were looted and the public sector wage bill was allowed to spiral.
We believe that in this week’s budget, fiscal consolidation may proceed at a slightly slower pace than we expected as NT is unlikely to meet the conservative expenditure estimates set out in the MTBPS. But all things considered, we are expecting a credible budget along with news of reforms that will grow the economy, alleviate unemployment, lessen the chance of further ratings downgrades and improve business sentiment.
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