A BUDGET THAT INSPIRES HOPE - Paul Mashatile, ANC Treasurer General
A BUDGET THAT INSPIRES HOPE
If there is one word that aptly describes Minister Tito Mboweni’s 2021/22 budget, that would be hope. Notwithstanding the unprecedented challenges brought about by the COVID-19 health and economic crisis, Mboweni gave no less than 4 major reasons for South Africans to be hopeful in the midst of all the darkness. The budget also focused on the very important task of ensuring that as the current generation we leave the economy in a better shape for future generations.
The first reason for South Africans to look to the future with confidence is that the current fiscal framework allows for extended support to firms and households in distress and additional funding to strengthen public health care services, while at the same time ensuring the sustainability of public finances in the medium to long term.
Non-interest spending has been kept steady over the next there years, although this will decline as a share of GDP in the coming years. Increases in taxes have been kept to a minimum. The R 40 billion worth of tax measures proposed in the October Medium Term Budget Policy Statement have been held back. There is even a reduction in corporate tax to an attractive 27%, and R 2.2 billion in tax relief has been provided to lower and middle income households. The COVID-19 relief of distress grant has been extended to April this year.
Also of significance is that in the current fiscal framework R 10 billion has been allocated for the purchase of vaccines over the next two years. The contingency reserve has also been increased from R 5 billion to R12 billion to provide for further purchases of the vaccine and to cater for other emergencies. The deployment and accelerated roll out of vaccines is a necessary intervention to unlock economic activity, especially in strategic sectors such as tourism.
Mboweni indicated that the budget deficit is projected to close and that a primary surplus in the main budget can be expected in 2024/25. The Debt to GDP ratio will stabilize at 88% in 2025/06. This ratio is expected to decline thereafter. This is an important development as it helps in placing our economy on a sound footing for sustainable growth. It also ensures that future generations are not encumbered by the debt we accumulate. Staying the course with regards to fiscal consolidation, especially in the midst of an economic meltdown, is not an easy decision. It is however a necessary decision to be made if we are to place the economy on a firm footing for sustainable growth.
A much improved economic outlook is another reason for South Africans to be hopeful. Owing to a strong rebound in global growth, led by India and China, prospects for the South African economy have improved. Our economy is expected to rebound to 3.3% this year. Over the next two years, growth will average 1.9%.
Also encouraging, is the progress being made in implementing structural economic reforms in line with the Economic Reconstruction and Recovery Plan announced by President Cyril Ramaphosa in October last year. The reforms are aimed at removing brakes to economic growth by fundamentally altering the structure of the South African economy, lowering barriers to entry, broadening ownership patterns, raising productivity and lowering the cost of doing business.
Modernizing and reforming network industries such as electricity, road, rail, ports and telecommunications is one of the critical components of the Economic Reconstruction and Recovery Plan. Accordingly, government has committed R 791.2 billion towards infrastructure investment. This is supported by partnerships with the private sector and other players through initiatives such as the Infrastructure Fund.
Furthermore and in order to take advantage of opportunities from the Africa Continental Free Trade Agreement, in particular to improve access to African markets, South Africa’s 6 busiest border posts, staring with Beitbridge, will be upgraded and expanded.
A further reason to be optimistic is that Minister Mboweni’s budget explicitly supports job creation – R 83.2 billion has been set aside for public employment programmes and an additional R 11 billion was allocated for the Presidential Youth Employment Initiative. This means nearly R 100 billion has been budgeted for direct employment creation programmes. A total of R 4 billion has been allocated to support township and rural enterprises.
The budget also allocates resources to strengthen the fight against crime and corruption: R 1.8 billion was set aside to modernize the justice system. SARS was allocated an additional R 3 billion to enhance its capacity to undertake specialized audits and investigations, including dealing with the illicit movement of goods across borders.
While there are reasons to be hopeful, there is no doubt that much work lies ahead. Our public finances are dangerously over-stretched, and there is a projected shortfall in tax revenue collection of around R 213 billion. This is the largest tax shortfall on record!
Furthermore, the uncertainty around the evolution of the COVID-19 virus, possible new waves of the pandemic and new strains of the virus as well as possible delays in reaching population immunity are some of the factors that dampen prospects for economic recovery.
However, and to borrow from the words of Minister Mboweni; all of this notwithstanding we are not without hope.
ANC Treasurer General