Finance Minister Tito Mboweni’s tricky budget balancing act hinges on reducing the public sector wage bill by R160.2-billion over the next three years. All indications are the political fight is on.
There is little room for manoeuvre – “the economic and revenue outlook has deteriorated”, is how the Budget Review 2020 put it.
Mboweni said in his pre-Budget speech, “We have to get our house in order. And it is going to be a painful process…”
“We need to wake up, all of us… We can’t have all the things we want at the same time. It’s a difficult time when we discuss with the family: ‘We can only have pilchards, not rump steak’.
He showed that tax collection was R63.3-billion short due to the decimated economic growth down to 0.4%, even if it is anticipated to inch up to 0.9% in the course of the 2020 financial year.
Debt service costs are the fastest-growing increases – by 12.3% in 2020 – to R229.3-billion, representing 15.2% of the R1.95-trillion Budget. This represents an acceleration as debt service costs had increased from R184-billion in 2018 to R202.2-billion in 2019, or just short of 11% in 2019 to. Borrowing is up to R407.3-billion in 2020, or R71.9-billion more than in 2019, rising to R497.5-billion in three years’ time. Debt to GDP is at 60.3% now, expected to increase to 71.6% in 2022/23.
The next fastest-growing spending item in Budget 2020 is economic development at 6.6%. The budget deficit stands at 6.8% of gross domestic product (GDP).
In these difficult times, there was simply no room to raise taxes in the 2020/21 financial year, beyond the usual culprits of sin taxes, fuel levies and the like.
And while Mboweni indicated that he would have liked to cut taxes more, personal income tax nevertheless was dropped slightly, averaging 3% for most wage earners, depending on income levels. Those earning an average of R265,000 a year, will pay R1,500 less income tax, Mbowebi said in his prepared speech, while those earning R460,000 a year, will save R3,400 on their income tax.
The key instrument to balance South Africa’s books was simply this: tackling the public sector wage bill that currently makes up about 38% of government expenditure.
“Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery,” says the Budget Review, adding later how civil servants’ salaries had grown “40% in real terms over the past 12 years without equivalent increase in productivity”.
“Government recognises that public service employees should be fairly remunerated, but is obligated to balance compensation demands with the broader needs of society as reflected in the Budget.”
“For the credibility of our fiscus, the R160-billion or so must be found for all our sakes. There’s no point in being victorious, trying to keep your cents, but losing our pounds,” he said, adding: “On the wage bill issue, we will find each other. It will take a bit of time…”
Source: Daily Maverick