What should have come down, went up - Sakeliga on 2019 budget speech

20 February 2019

“What we needed from the 2019 budget speech was a substantial decrease in expenditure. What we got was an increase in expenditure, tax, fuel levies and an exceptionally untimely carbon tax. It increases the strain on the economy and carries the South African fiscus further down an unsustainable path. And by in effect increasing income tax, it transfers the buying power workers in the real economy should have had to bureaucrats.” 

Piet le Roux, CEO of Sakeliga, says that despite some signs that Minister of Finance Tito Mboweni wants to cut the state employee wage bill, and wants to resist attempts to take on more SOE debt, the fundamental fiscal trajectory remains deeply concerning.  

“From the start of his term, and in the run-up to Minister Mboweni’s budget speech, we made it clear that the litmus test for this budget would be whether state expenditure is reigned in substantially. Despite some efforts by Minister Mboweni, we saw the exact opposite. Projected consolidated expenditure still increases by more than price inflation.” 

ESKOM 

Regarding the electricity crisis, Mboweni has announced financial assistance of R23 billion per year during Eskom’s reconfiguration. “There was, however, no indication of how long the planned restructuring could take. Considering the dire need for substantial change at Eskom, Treasury’s approach will likely prove insufficient to address the crisis in the medium to long term.” 

“It is telling that the Minister has refused to take on more of Eskom’s debt. We should, however, not celebrate too soon – as Eskom’s financial shortfalls will then likely be borne by electricity users. What we need is a free market in electricity, so that all our energy eggs are not in one basket.” 

SOE’s 

“It has been clear for a while that Minister Mboweni probably wants to rid the state of the liabilities posed by SOE’s like SAA. He is, however, undoubtedly constrained in what he can do about it, and the result is that we have only heard once more some serious talk, but no real relief from the SOE debt trap,” says Le Roux. 

TAX INCREASES 

Though income tax rates have not been adjusted upwards, bracket creep will still constitute a burden to tax payers. “On an annual income of R500 000, for instance, the effective increase on tax paid appears to be around 2%,” says Le Roux. “A number of smaller taxes and tax-adjustments are cause for concern as well. Fuel levy increases threaten to further constrain economic activity, rising with 29c and 30c for petrol, and diesel respectively. As with the bracket creep income tax increase, these taxes too will have the effect of taking productive money out of the hands of the public and into those of bureaucrats.” 

BUDGET DEFICIT AND STATE DEBT 

It is disappointing to note that Mboweni has failed to reign in state spending in any substantial sense, with the budget deficit at R242 billion. This is largely due to the Minister’s hesitance – or the constraints imposed by his party – to cut costs where they really matter. “He is putting his sights on the public sector wage bill, with early retirement packages and a natural attrition strategy. However, employee compensation remains projected to increase by more than 7% per year in the coming years,” says Le Roux. 

In addition, fiscal pressure is likely to be exacerbated. “The Minister has projected gross national debt as a percentage of GDP to reach approximately 60% by 2023/2024 – but this excludes debt guarantees and other contingent liabilities on the fiscus,” says Le Roux. 

In conclusion Le Roux says: “It was never going to be easy to bring down the budget deficit to under the R100 billion we suggested. Minister Mboweni’s best attempt in this regard is to project a budget deficit of approximately R227 billion by 2021, in real terms. What we needed was something drastic. We didn’t get it.” 

Moira-Marie Kloppers, Head: Media and Marketing, Sakeliga, 20 February 2019