Finance Minister Enoch Godongwana will present the Mid-Term Fiscal Policy Statement (MTBPS) on Wednesday, October 26. Some agencies expect it to address the key factors surrounding fiscal and economic sustainability in South Africa.
Global and national macroeconomic instability in recent years has resulted in significant revisions in the public financial outlook from one financial report to the next – and the MTBPS of This week is expected to follow this trend, Bureau of Economic Research (BER).
Surprisingly, South Africa’s revenue exceeded expectations due to higher-than-expected inflation, which boosted nominal GDP expectations.
According to Nedbank’s MTBPS overview report, tax revenue has been supported by high inflation and dynamic revenues in the first five months of 2022/23 showing that total budget revenue is exceeding budget estimates. financial year book.
Total revenue increased 10.3% year-on-year in the five months to August, with significant increases in corporate tax (15.3%), personal income tax (8.4%) and value added tax (VAT) (11.9%). ), Nedbank said.
The Bank expects revenue to grow by 8% in 2022/23, higher than the National Treasury’s forecast of 2.9%, resulting in revenue surpassing R130 billion.
However, PwC points out that although tax revenue – the largest contributor to tax revenue – grew more than expected in fiscal year 2022/2023, the fiscal outlook remains a budget deficit. growth in the medium term along with the continuous increase in debt.
Nedbank expects spending to grow at an average annual rate of 6.4% (in nominal terms) between 2022/23 and 2024/25.
Due to overdrafted revenue, many are now looking to MTBPS to reveal how much additional income will be consumed by additional spending pressure. The key factors that MTBPS is expected to address are: Revised spending on consolidated payrolls could be Rs 20 billion higher for 2022/23 than forecast in February, the BER noted.
PwC added that the MTBPS must strongly reiterate that the government will not backtrack on its promise to reduce the pressure on the budget from payroll costs, which will test the resolve of the national treasury to reduce payroll increases. average is 7.3. % each year. 2014/2015 and 2019/2020 only 2.1%/year in the medium term.
Public sector unions have rejected the government’s 3% salary offer and are demanding 6.5%. The Reserve Bank of South Africa has warned that the wage increase has the effect of pushing up inflation, which could lead to further rate hikes.
Momentum Investments said the pace of government spending is expected to pick up following the final pay agreement between the government and public sector unions.
According to Nedbank, after the unions in Eskom and Transnet secured 7% and 6% increases for the current financial year, civil servants could hardly accept increases of less than 6%.
The assumption of 6.5% in 2022/23 and an average of 5% per year in 2023/24 and 2024/25 would raise wage costs by 8% or R180.7 billion over the MTEF period, over the National Treasury’s February 2022 Budget, which was based on an annual average rise of 1.8% per year.
“Based on our revenue forecasts, the wage bill would absorb 37% of fiscal revenue per year over the MTEF period,” it said.
More bailouts for state companies
The budget may include more funds for non-Eskom state-owned enterprises (SOEs), including Transnet, says the BER.
Momentum Investments noted that although the government stood firm on the issue of additional bailouts for SOEs at the medium-term budget in October 2021, the adoption of a tough stance on SOEs will be tested in the medium term as a number of critical SOEs continue to struggle with operational and financial inefficiencies, corruption and mismanagement.
“Challenges faced by SOEs have resulted in poor service delivery, higher unemployment, low business confidence and weaker economic growth,” the group said.
Allowances – including Basic Income Allowance
BER said another concern on the spending front is whether the Treasury is planning to extend the Social Distress Relief (SRD) grant ) 350 per month and if any, if there is an implicit tax then the increase is expected within the budget framework to finance this.
Others, like Chief Economist Maarten Ackerman, oversee anything related to basic income subsidies.
“In terms of South Africa’s macroeconomic outlook, it is important to note that there has been another wave of earnings in addition to outperforming sales in recent years. So we’ll have to see what the finance secretary does with it,” Ackerman said.
“We want the proceeds of profit to be used productively, not just for temporary, one-time social spending with little or no effect. use to stimulate economic growth.
According to PwC, the Treasury considers viable funding options for the Basic Income Allowance as undesirable – including personal income tax increases, property tax implementation, value added tax rate increases ( VAT), take on new debts or reallocate existing funds.
However, Godongwana said on September 19 that the National Treasury is considering income support as part of an overall social security plan – where income support is only one component.
“The Minister of Finance has indicated that the MTBPS may have an opinion on this matter. We believe it is essential that the comprehensive social security framework be detailed as soon as possible in light of the country’s socioeconomic challenges and the ongoing broad debate about a BIG ,” said the group.
Response to Electronic Toll Collection
Transport Minister Fikile Mbalula has long promised to find a way out of Gauteng’s failed electronic toll collection project. He pinned the date of the last word on the system to this week’s budget day.
It is not yet known what will happen to the system, but the Minister has no doubt that no matter how the system is changed – whether it is transformed or abandoned altogether – the debt of the system must be paid.
Over the past few years, the Treasury has granted the Sanral sugar agency billions of grants to cover shortfalls and debt accumulated on the system, and this is expected to continue.
In fiscal year 2021/22, Sanral received R3.85 billion in the form of GFIP funding, compared to R2.72 billion in 2020/21. The failure of the system – which represented 1% of the roads in its portfolio – resulted in the freezing of all future jobs.
Eskom Debt Assumption
Another key element of MTBPS will be news of a “solution” to Eskom’s unsustainable debt burden, the BER said.
Eskom’s debt stands at around Rs 400 billion, and the BER expects Godongwana to move about Rs 200 billion of electricity debt to the government’s balance sheet – as Eskom has argued that its repayments only sustainable at Rs 200 billion.
However, the BER believes that the increase in overall public debt due to debt transfers from Eskom can be relatively contained thanks to overdraft revenue in 2022/23.
PwC said that while shifting Eskom’s debt to the government would further worsen fiscal indicators, it could also be the only option available to shore up the power company’s finances and economic prospects of the country.
BER and PwC said the transfer should be welcomed as South Africans will likely prefer the debt transfer option over a 32.7% increase in electricity prices in 2023, as Eskom has asked the Authority. National Energy Administration of South Africa (NERSA).
BER expects total public debt for 2022/23 to grow to about 73.5% of GDP from 72.8% of the Treasury forecast in February.
Budget Allocation After a Chaotic 2022
The February 2022 National Budget was tabulated before Russia invaded Ukraine. As a result, growth forecasts were revised downward globally while inflation estimates spiked following an additional shock in commodity markets.
Nedbank report says intense dump, lingering effects of KwaZulu Natal flood damage, labor strike and Russo-Ukrainian war pose downside risks to February growth forecast 2022 of the Ministry of Finance.
Real GDP is expected to grow 1.8% in 2022, slightly below the National Treasury forecast of 2.1% in February. Nedbank said that in 2023, the economy will likely face a global slowdown and rising interest rates.
The Nedbank report forecasts that growth will slow to 1.2% in 2023, compared with 1.6% for the National Treasury. As a result, the National Treasury is expected to revise down its real GDP growth forecast and raise its inflation forecast.
The Bank further emphasized that improving financial measures is dependent on temporary factors and therefore the need to maintain fiscal discipline remains paramount.
Controlling spending – maintaining low growth in interest-free recurrent spending – will have to be achieved through tight controls on the public sector wage bill and transfers, he added. society. Nedbank said economic growth forecasts face significant downside risks, which could undermine revenue growth and worsen fiscal indicators
