The major concern of this coming MTBS that will be delivered on Wednesday 1 November is how the government will deal with the growing budget deficit and the debt situation.
The effects of the Covid-19 pandemic, Russian-Ukraine conflict and load shedding had a very high detrimental effect on the growth in the GDP and therefore the governments income.
The treasury had to finance the ever-growing need for social welfare and poverty alleviation, the struggling State-Owned Enterprises (SOE’s) and the pressure of labour unions to increase civil servants’ salaries by more than the inflation rate.
The Minister therefore will have to mention the effects of these expenditures over the last six months on the deficit in his fiscal policy outlook that was presented in his main budget in February.
Over the last 16 years government debt had increased to more than R4.7 trillion in the current financial year, compared to R627 billion in 2008/09.
This debt is incurring debt-service costs and was expected to average R355.2 billion per year over the medium-term expenditure framework. Did that change over the last six months and will it affect the medium-term outlook over the next three years.
The MTBPS basically comprises out of four parts, namely the introduction on the political jargon as background, the economic outlook, fiscal policy outlook and its expenditure priorities.
Of importance is that no tax proposals will be made, but the Minister may suggest that increases in taxes will be implemented in the main budget in February 2024.
The economic outlook will set the tone of the MTBPS. In the main budget in February, treasury had forecast the economy would grow by 0.9% in 2023. This growth rate is still in line with most forecasts, like that of the IMF.
The main issue remains if government tax income is in line with the R1 958.9 billion that was forecasted in February.
It is well known that the mining and resources sector’s income and therefore tax obligations had diminished strongly over the last six months.
Over the last two financial years, the government’s budget income was boosted by an extra R100 million from the primary sectors. This had given the Minister room to keep VAT, personal income, and company tax, as well as the fuel levy tax and RAF levy unchanged. It seems that this bonanza has disappeared and that pressure on the income side emerges. It is therefore expected that the fiscal policy outlook for the Government will be less favorable than six months ago.
Finance Minister Enoch Godongwana last week already warned that he will take a tough line on the expenditure side of the MTBPS over the next three years on Wednesday.
He emphasised that the shrinking fiscal space due to weak growth the ever-increasing public sector wages and the poor performance of Eskom and Transnet especially remains a concern and will have to be addressed.
It will be interesting to await the details of his proposed tough line on government spending.
Civil society organisations and members of the ANC have already criticised his increasingly outspoken concern regarding the growing expenditure and debt.
The upcoming election and possible clashes with the labour unions on wages bear heavily on the treasury to address the growing debt concern.
Chris Harmse is the consulting economist of Sequoia Capital Management.
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