SA TIMES- Cape town coronavirus disaster response-“(Zero-based budgeting) means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were ten years ago,” says Mboweni. On Wednesday, a grim minister of finance Tito Mboweni delivered a revised national budget, which outlines some of government’s plans to cope with the catastrophic impact of the coronavirus crisis.
Government is expecting to this year earn R300 billion less in tax than it had expected, while it has promised to spend R500 billion to help the economy and citizens amid the pandemic.
Between the loss of revenue and big-ticket items related to the coronavirus, such as payouts by the Unemployment Insurance Fund (UIF), a previously projected R370.5 billion budget deficit (or 6.8% of GDP) has now ballooned to R761.7 billion, or 15.7% of GDP.
“Debt is our weakness,” said Mboweni. “We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts.”
“For several years, the National Treasury has been warning that an absence of fiscal space would leave South Africa vulnerable to external shocks. That risk is now a reality. South Africa has begun heading into a debt spiral,” said Dondo Mogajane, Treasury’s director-general, in the budget statement. This will result in the collapse of state-owned companies and public entities, he warned.
The economy is now expected to shrink by 7.2% in 2020. This is the largest contraction in nearly 90 years.
How government plans to deal with the debt crisis
Treasury wants to cut government spending by about R230 billion over the next two years.
For now, it has shifted allocations from underperforming projects to fund new priorities, and it also stopped or delayed other capital projects. It will also decrease budget allocations to provinces. In addition, it tapped “surplus” money from institutions like the UIF.
And it is also planning R40 billion in tax hikes over the next four years to boost its income, starting with a R5 billion increase next year.
Here’s what else you need to know about South Africa’s emergency coronavirus budget
SA plans to borrow $7 billion at low interest rates
South Africa wants to borrow $7 billion (some R127 billion) from international organisations, at preferential interest rates.
It already received $1 billion from the New Development Bank (the so-called Brics Bank), and plans to borrow R4.2 billion from the International Monetary Fund’s low-interest emergency facility.
There is no news on public sector wage bill yet
With almost half of all government revenue going towards civil servant salaries, cuts to the wage bill will be crucial in government’s belt-tightening. But it is already battling unions, after it did not honour a wage increase agreement. (Civil servants were supposed to get wage increases of between 4.4% and 5.4% from April, but this has not been paid.)
In his budget speech, Mboweni only wished minister of public service and administration Senzo Mchunu well in his wage negotiations with unions, trusting that salaries will be set at a “appropriate, affordable and fair level”.
There’s an extra R6.7 billion for roadblocks and related security measures
The revised budget provides R6.7 billion in new money for police and defence force deployment related to Covid-19, on top of R3.3 billion in reprioritised funds for peace and security in general.
The extra money is “mainly for the procurement of personal protective equipment, and operational costs associated with roadblocks and air support,” according to the budget review.
There’s money for 1,800 social workers
About 1,800 additional social workers have been appointed, Mboweni said, through what the budget review said was reprioritised funds.
They are expected “to provide psychosocial services to people affected during the pandemic”.
The workers will each receive a R6,000 stipend per month for three months, at a total cost of R33 million.
SANParks and the weather service get an extra R1.1 billion
A number of public entities need money “to augment the operational budget and mitigate the impact of Covid-19 on operational activities and obligatory costs such as compensation of employees”, the budget review says.
Four such entities will see a combined net increase of R1.1 billion in their allocations. They are:
- The South African Weather Services
- South African National Parks (SANparks)
- The South African National Biodiversity Institute (Sanbi)
- iSimangaliso Wetland Park
Provinces are bleeding because of the lack of gambling
South Africa’s provinces anticipate a R4 billion shortfall in money they had counted on, the budget review says, in part because of a halt on gambling, and in part because of a lack of healthcare demand.
“Tax receipts from casinos and horse racing have declined. Fees paid for public health services have also fallen, as fewer patients are accessing non Covid-19-related health services,” the review says.
There is no new money for (almost all) SEOs – but not all of them will necessarily survive
The Land Bank will be getting R3 billion to recapitalise it, the budget review says – and that is it.
“No other in-year spending adjustments are proposed for state-owned companies.”
That doesn’t mean other state-owned enterprises will be okay, or that all of them will be around by the time the dust settles on the disaster.
“The Covid-19 pandemic underlines the urgent need for broad-based reforms at state-owned companies so that they can become efficient and financially sustainable. These reforms include rationalisation (reducing the number of and merging some state-owned companies, and incorporating certain functions into government), equity partnerships, and stronger policy certainty and implementation.”
Importantly, there was no mention of the ailing SAA. Government is supposed to commit at least another R10 billion as part of the airline’s business rescue plan.
Municipalities are big recipients of new funds
Spending on and through municipalities will get R11 billion in new money, with another R9 billion in conditional grants to municipalities redirected towards coronavirus priorities.
Much of that money will go towards water and sanitation provision (both new infrastructure and an increase in people getting free basic services) plus spending on shelter for homeless people and sanitising public transport.
SA is getting zero-based budgeting
Mboweni says government will pilot zero-based budgeting with the medium-term budget, expected in September.
Traditionally, the previous year’s budget is used as a starting point, and allocations to each department is increased or (very rarely) cut.
But with zero-based budgeting, every year the budget is started from scratch.
This means that every line item is interrogated to see whether it is worth it. If a department can’t properly justify a previous cost, its allocation will be left out of the budget completely.
“(Zero-based budgeting) means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were ten years ago,” says Mboweni.