Tough love for SOEs, grants and state capture: the biggest points from Finance Minister Enoch Godongwana’s 2022 Medium-Term Budget Statement.
Finance Minister Enoch Gondogwana, amidst a volatile global outlook and with South Africa no longer able to ride on the back of its commodities windfall, has tabled a Mid-term Budget Statement that’s remained true to his tough love philosophy for state-owned entities and no commitment comes without strings attached.
Treasury has listed several long-standing impediments, that continue to hamper South Africa’s economic growth, these include unreliable electricity supply, crime and corruption, inefficient ports and rail network, weak state capacity and high levels of market concentration as well as barriers to entry that supress the emergence and growth of small businesses.
This with the country expected to record a higher-than-expected revenue collection, mostly through corporate income tax, which government says will assist to restore some of its department’s budgets and aid in the provision of basic services to citizens.
ECONOMIC OUTLOOK
Treasury cites the International Monetary Fund’s global growth forecast, which has been revised down from 4.4% to 3.2% this year and from 3.8% to 2.7% in 2023 as a sign of global conditions that will not support South Africa’s growth as anticipated in the February budget speech.
Some of the international issues with a direct impact on South Africa’s performance include the Russia-Ukraine conflict, the further decline in China’s economic growth, the possibility of energy rationing in Europe.
It also lists the damage from the April KwaZulu-Natal and Eastern Cape floods, industrial action across several sectors and widespread power cuts as risk factors on the domestic front.
The finance minister announced that South Africa’s own GDP prospects, which have declined from the 2.1% estimated in February to 1.9.
National treasury says it’s making progress in its bid to stabilise South Africa’s debt burden, announcing that a fiscal deficit of 4.9% of the GDP is projected for 2022/23.
Its also projecting that consolidated government spending will exceed R2.2 trillion this year and likely to rise to R2.5 billion in the next financial year, this as it proposes the non-implementation of budget reductions.
Revenue collections have also exceeded projections, with the tax revenue having to now be revised from R83.5 billion to R1.68 trillion.
The revenue is largely attributed to improvements in the corporate income tax collections, with strong receipts from the finance and manufacturing sectors. This has allowed government to restore the baseline budgets of departments key to the delivery of services, without forcing it to make commitments it cannot afford.
The extra funds will be used to reduce deficit in the current financial year, added to infrastructure projects and directed towards education, health and policing, it will also be used to address fiscal risks which were previously identified such as the wage bill and those associated with some of the state-owned entities.
Fuel levy collections are expected below 2022 budget estimates due to the tax relief provided between April and July 2022.
There is more money in government’s kitty, with R54 billion, consisting of R37 billion unspent from contingency reserves.
STATE-OWNED ENTITIES
South African Airways, the Post Office, PRASA and public broadcaster; the SABC are just some of the state-owned entities that got no mention in the minister’s midterm budget review, but those who made the cut, have conditions set out by Gondogwana who’s set aside R30 billion for arms company Denel, the South African National Roads Agency and railway company Transnet.
The three are identified as important enablers of economic growth but with near-term challenges that called for immediate cash injections.
Denel, will receive R204.7 million to reduce contingent liabilities arising from its weak financial position, with a possible further R3.4 billion to complete its turnaround plan, if set conditions are met.
Government has also committed to further monitor the turnaround strategies at the affected SOEs.
Eskom also manages to get a bailout from government, which notes the unplanned power cuts have increased consistently since 2017. Treasury plans to provide debt relief for the ailing electricity provider, in the hope of easing its current financial pressure.
This will see government footing a “significant portion” of the power provider’s R400 billion debt.
The relief, which is still to be determined is expected to be between one-third and two-thirds of the regulator’s current bill.
Gondogwana says the hope through this initiative is for the electricity provider and the proposed reforms, which include unbundling Eskom into three separate entities, will see it becoming financially sustainable.
Government has committed to making an initial allocation of R23.7 billion from the national fiscus for Gauteng’s contentious e-tolls, but this, like most of its interventions, is to be done under strict conditions.
The finance minister says the unresolved question around user-pay system for Gauteng’s highways continues to have major negative implications for road construction in the country. He’s called for a solution to move the conversation from current debates.
Gauteng government is expected to contribute 30% towards settling SANRAL’s debt and interest obligations, while national government will oversee 70%.
The province will also be expected to cover the cost of maintaining 201 kilometres and associated interchanges, while the additional funding investment of the road will be catered for through existing electronic toll infrastructure or new toll plazas, along with any other revenue source, within their area of responsibility.
STATE CAPTURE
Gondogwana, as he looks to the 2023 budget speech, has given some expression to President Cyril Ramaphosa’s address to the nation on Sunday, where he shared some of government’s responses to the report on the commission of inquiry into state capture.
The recommendations from the inquiry, which spanned over four years, are aimed at strengthening institutional, governance and accountability mechanisms in the country.
Gondgwana says his department will be allocating additional resources to the country’s security forces to take the fight to those who threaten South Africa’s peace.
Police will also be supported in the procurement of 15 000 additional constables over the next three years.
The department of justice and constitutional development has reprioritised funds to the financial intelligence centre to implement recommendations from the inquiry that looked into wide-spread looting from the country’s public sector.
There will also be additional reprioritisation for court security, replacing computer equipment, procuring vehicles for provinces and enhanced capacity at the Thuthuzela care centres.
While no money is attached to some of these plans, treasury wants the NPA to receive funding for its specialised tax units and the Investigative Directorate, this will allow it to procure specialist prosecution services, appoint forensic auditors and accountants to deal with high priority asset forfeiture matters.
Long term plans also include the establishment of a digital forensic data centre, finance increased witness protection operational costs and to increase human resource capacity at the financial intelligence centre.
SOCIAL GRANTS
The social relief distress grant was introduced as a measure to support low-income households at the height of COVID-19 in 2020, in February it was extended for a year with government now taking a decision to retain the temporary grant, at least until 2024.
Gondogwana says given the large cost of extending the grant, increases to other social grants in the 2023/24 year will be slightly below inflation and other social welfare priorities might remain unaddressed.
Treasury says fewer people now rely on the relief programme, under its social development portfolio, at present 7.4 million people receive the grant.
It says discussions are still underway to consider a replacement for the grant, including ways to finance it going forward but that it needs to be financed with permanent increases in revenue, spending, reprioritisation and or a combination of the to.
In its predictions, if the grant value and take-up remain and if its extended indefinitely, its cost could grow at an average of 8.8% per year, reaching R64,9 billion by 2030/31. Treasury warns that this without a permanent source of funding would threaten the sustainability of public finances.
FLOODS
Recent flood damage in KwaZulu Natal and the Eastern Cape have forced government to consider climate changes more sharply when setting out its budget.
Gondongwana says climate concerns are reshaping the world, including its economic context.
He says South Africa is finalising negotiations on the pledges by the international partner group for the Just energy transition, with cabinet recently adopting an energy transition.
Part of the allocation towards Transnet will be to repair infrastructure severely damaged by the floods and to increase locomotive capacity.
Flooding also had an adverse impact on the manufacturing and construction industries.
GREYLISTING
Gondogwana says government is doing everything necessary to prevent South Africa from being grey-listed by the Financial Action Task Team, this is the international standard-setting body which oversees global compliance with anti-money laundering rules.
South Africa failed to meet several of its 40 recommendations and is now in a time crunch to tighten and amend some of its laws to curb money laundering and corruption more effectively before the February 2023 deadline.
Two bills are already before parliament and are aimed at being enacted before the end of the year, the two are aimed at addressing weaknesses in the legislative framework.
The minister says government is investing in capacity to support its efforts, this includes work done by the Investigating directorate of the National Prosecuting Authority, which has enrolled 26 cases, declared 89 investigations and had 165 accused appear before the courts for crimes linked to alleged state capture related offences.
He further commits to allocate additional resources to the NPA, the Special Investigating Unity, the Financial Intelligence Centre and the South African Revenue of Service to improve on the state’s capability to investigate and prosecute sophisticated financial crimes.
The Economic Freedom Fighters on Wednesday attempted to upstage the Mid-Term Budget Speech by carrying placards saying, “Godongwana is a pervert”.
Party members gathered at the National Assembly and referred to Godonwana as an “incompetent minister who is also a pervert and bribed his way out of a GBV case”.
‘Godonwana a pervert’ – EFF
Calling Godgonwana a pervert is nothing new. In August, the EFF called for Godongwana to resign with immediate effect.
Party leader Malema said at the time: “The EFF calls for the immediate resignation of the minister of finance and a pervert”.
Malema added: “[Godongwana] has added sexual harassment on top of his complete failure of managing the South African economy”.
“The continued stay of Enoch Godongwana in office is a spit in the face of the 9 500 victims of rape who opened cases at police stations between April and June 2022.”
