SA's Budget 2019: A “difficult budget” for difficult times | by Kate Ferreira

Kate Ferreira 2During his 2019 Budget Speech last month, Finance Minister Tito Mboweni stated: “It is time for us to sow the seed of renewal and growth”. The opening statements of his speech drew heavily from these keywords (seed, growth, renewal), but despite their positive tone, the budget itself walks a difficult path between trying to undo some of the major missteps of certain spheres of government in recent years, and trying to position the country for future growth.

“A few years ago,” Mboweni recalled, “one of my predecessors handed out succulent plums to the members of this house, to demonstrate the times of plenty we were in. “Today, we walk into this house with an iconic South African plant, the aloe ferox. This is one of the best known South African plants. It has a long history of medicinal use. It is resilient, sturdy and drought resistant. It withstands the elements.”

This plant, he offered as metaphor for the current economy, arguing: “We must take the bitter with the sweet,” before adding “today, I bring you a seed to prove that if we plant anew, we can return to those plum times.”

Six major principles

National Treasury’s budget, Mboweni told us, is built on six fundamental prescripts:
  1. Achieving a higher rate of economic growth
  2. Increasing tax collection
  3. Reasonable, affordable expenditure
  4. Stabilising and reducing debt
  5. Reconfiguring state-owned enterprises
  6. Managing the public sector wage bill
Viewed as a whole they represent a significant challenge for the financial “conductors” of the nation, one that will require not just creative means of increasing tax revenues but also tight control of spending – which speaks directly to those of us in the procurement profession. This suggests that scrutiny and management of public spending will be high on the priority list, as it should be.

Spending crackdown, but infrastructure focus
Thankfully, the government is looking to its own wage bill as a significant potential source of costs savings. Mboweni said: “Since October, government has taken steps to adjust baseline expenditure downwards by a total of R50.3 billion over the medium term. Half of these reductions come from adjustments to government’s spending on compensation.”

But spending will also be curtailed with R12.8 billion savings coming “from measures to reduce spending on specific programmes”, with earmarked special funds for critical infrastructure initiatives. “Provisional allocations are made for the financial support to Eskom and the Infrastructure Fund.” Later in the speech, he addressed our infrastructure needs again , saying: “First [step] is to create a sensible project pipeline. Second, is streamlining the law to make it easier to build. Third, better information for everyone. And finally, is to actually build.”

The ”allocations” mentioned, Mboweni says, will offset the baseline reductions (or savings achieved), “and as such the expenditure ceiling is revised upwards by R16 billion over the next three years.”Tito Mboweni

State of SOEs
In terms of state-owned enterprises (SOEs), the minister asked some hard but necessary questions, and characterised SOEs as posing a “very serious risk to the fiscal framework”.

“Funding requests from SAA, SABC, Denel, Eskom and other financially challenged state-owned enterprises have increased, with several requesting state support just to continue operating. Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?”

The specifics of budget allocations for the SOEs are contained in the full speech, but it is clear that the Minister intends to keep a closer watch, and tighter rein on these types of entities.

Supporting the private sector
After his focus on public, the minister shifted his gaze to private business, acknowledging the paramount role this plays in terms of growth, jobs, innovation and more. “The private sector is the key engine for job creation,” he said. “Government’s policy actions aim to end the uncertainty that has undermined confidence and constrained private sector investment.”

Furthermore, he promised – among other things – that reduced visa requirements would re-stimulate the critical tourism sector; that government would allocate R19.8 billion for industrial business incentives; that allocations to the Job Fund will rise over the next three years to R1.1 billion; and that R481.6 million would be allocated to the Small Enterprise Development Agency “to expand the small business incubation programme”.

Overall, Minister Mboweni’s speech promised action, and clearly identified the many challenges we face. It was a no-nonsense speech, from a no-nonsense minister. Whether the civil service can be held to these promises and goals – both the letter and spirit of the ‘law’ – however, remains the biggest challenge.

Kate Ferreira is the Contributing Editor of Bespoke Bulletin - 

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Posted on March 14, 2019

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