Welcome to Nene's low-growth world
Finance Minister Nhlanhla Nene’s mini-budget made it clear: there is no more extra money.
|||Cape Town - Welcome to a low-growth world.
This was a key message underpinning Finance Minister Nhlanhla Nene’s medium-term budget policy statement (MTBPS) – colloquially known as the mini-budget.
It supported another message from the minister in his speech today: there is no more extra money.
In fact Nene said lower-than anticipated GDP growth – 1.5 percent instead of the 2 percent he forecast in February – had resulted in a total tax revenue shortfall of R7.6bn this year, expected to reach R35bn over the three-year cycle covered by the MTBPS.
Four times in his speech, Nene repeated variations of the mantra: “If we do not achieve growth, revenue will not increase. If revenue does not increase, expenditure cannot be expanded.”
With that, the minister confirmed there would be no deviation from expenditure ceilings announced last year, meaning new policy initiatives proposed by government departments would have to be funded within existing budgets.
There was no big announcement relating to nuclear procurement, national health insurance or tertiary education fees - despite the government’s stated commitment to nuclear, mounting pressure for fast-tracking of NHI and the turmoil on university campuses over fee increases.
A #FeesMustFall protest arrived outside Parliament shortly before Nene was due to speak.
Before Nene could proceed, EFF chief whip Floyd Shivambu asked for the tabling of the MTBPS to be postponed so the university crisis could be debated before the budgeting process was finalised.
But House Chairwoman Thoko Didiza said there was still an opportunity to influence the budget allocations before Parliament adopted them.
Didiza put the matter to a vote and it was defeated 291-0.
Nene started his speech about 40 minutes late as a result, but was immediately interrupted by EFF members chanting "Fees Must Fall", before they were removed by parliamentary protection services.
While the Energy Department has said nuclear procurement would be completed by the end of the financial year, Treasury documents tabled by Nene said a mere R200m would be allocated over the coming three years “to support preparatory work for nuclear procurement” - suggesting a longer timeline.
Similarly, while health spending is set to continue growing faster than inflation, the 14-year timeline for the implementation of NHI, reaching full scale only in 2026, remains in place, with a white paper on proposed financing arrangements due to be published by the end of this financial year.
For the moment there is also no new proposal on tax, although Nene said a proposed carbon tax bill had been through the cabinet process and would be published for comment later this month.
While the Davis Tax Committee had made recommendations relating to profit shifting and transfer pricing, mining taxation, small business taxation and VAT and estate duty, a cautious approach was in order in light of weak economic performance.
However, Nene said a VAT increase remained an option.
Along with the R35bn tax revenue shortfall, Nene had to deal with a public sector wage settlement amounting to an extra R64bn over three years.
He said at a media briefing this morning the “first casualty” of this would be any plans government departments might have had to fill vacancies or expand their headcount.
In fact the provincial public sector headcount had dropped by 10 000, from 923 553 to 913 033, since the start of the current financial year - suggesting a freeze on filling of vacant positions previously imposed by Nene is taking effect.
The wage increase would also eat into projected contingency reserves over the next three years, according to the Treasury documents, reducing these by R5bn this year, R10bn next year and R26bn in 2017/18.
The key to “sustaining progress in a low-growth world”, the theme of his speech, was faster and more vigorous implementation of the National Development Plan and associated structural reforms while maintaining the health of public finances, Nene said.
“If further steps are needed to protect public finances, we will take them,” he said, adding: “We are staying the course.”
However, he acknowledged there would be slippage in budget deficit targets - by about 0.7 percent over the next two years, while a downward revision of GDP growth, shortfalls in revenue and a weaker exchange rate had resulted in an upward revision of the debt-to-GDP ratio, now expected to stabilise at 45.7 percent of GDP in 2019/20, compared to the 43.7 percent by 2017/18 he pencilled in in February.
Political Bureau