Medium Term Budget Policy Statement: Where to from here?

I write this while chaos reigns at parliament. I am sympathetic to #feesmustfall and only have one question ‘ how did it come to this?’

On Bruce Whitfield’s radio show on Monday evening he posed the question to me, “who has the most difficult job in RSA today?” Well, if you watched Minister of Finance, Nhlanhla  Nene’s Medium Term Budget Policy Statement ‘MTBPS’ in Parliament on Wednesday afternoon the answer is obvious. It’s him.

For years, I have urged students to participate in the national budget process. With very limited effect. But today they marched to parliament and the effect is staggering. #feesmustfall must now be on the parliamentary agenda. Limiting next year’s fee increase to 6% is not enough! Not by a country mile.

It would be naïve to expect that Nene could have made any substantial announcement regarding university fees. And there is practically nothing except platitude in his speech, except ‘R1.1 billion in additional transfers of skills levy revenue to sector education and training authorities and the National Skills Fund.’

That may help a bit. But it’s a drop in the ocean in solving the problem.

All issues mentioned in the  MTBPS important issues. Here are some of the highlights.

In the 2012 National Budget Speech, then Finance minister, Pravin Gordhan predicted that GDP would increase from 2,7% in 2013 to 4,2% by 2015. Not many would have disagreed with that at the time.

No such luck.

Page 1 of the 2014 MTBPS statement read ‘This year we anticipate GDP growth of 1,4%. While growth is expected to reach 3% in 2017’.

And today the growth rate estimates have again been revised downwards.

The 2015 MTBPS projection is that the South African economy will grow at about 1.5 per cent this year, rising marginally to 1.7 per cent next year. This is considerably lower than at the time of the February 2015 budget, when 2 per cent was predicted for 2015 and this 2.4 per cent in 2016.

Nowhere is a 4% growth rate even on the radar.

In Nene’s own words, “Without economic growth, revenue will not increase. Without revenue growth, expenditure cannot increase”.

This has to impact tax collections. So it comes as no surprise that gross tax revenue for 2015/16 has been revised downwards by R7.6 billion this year, and by R35 billion over the three-year period.

Personally I am surprised that the tax system is so robust, I expected a lot worse.

This is not news but rather a continuation of Nene’s announcements in MTBPS of 22 October 2014 ‘‘The choice we face in considering these proposals is a difficult one.  But we believe that this course can no longer be postponed”.

Those few words heralded a substantial change in the tax outlook of RSA. They were an admission by National Treasury that the current tax base of RSA was insufficient to provide for the future. And that tax increases would be inevitable.

By September 2014 South Africa’s national debt trajectory showed no end. All the hopes of recovery through increased economic growth were dashed. And a new fiscal package had to be adopted.

Net national government debt, 2007/08-2020/21 

Net national government debt, 2007/08-2020/21

Back in October 2014 Nene’s call was to increase tax collections by R15bn pa and decrease state expenditure by R15bn pa.

By February 2015 the numbers were revised upwards to increase tax collections by R17bn pa and decrease state expenditure by R25bn pa. And taxpayers took a knock in the solar plexus in the form of a 1% income tax hike and a 80,5 cents per litre fuel levy increase.

If there is good news from MTBPS 2015 it is the announcement that the ratio of government debt to GDP continues to stabilize. However, owing to weaker economic performance, projections of the debt level are revised marginally higher, and there is some slippage in the budget deficit compared with 2015 Budget projections.

National government debt as a share of GDP

National government debt as a share of GDP

Government expenditure targets remain almost unchanged.

Consolidated government expenditure, 2015/16-2018/19

Consolidated government expenditure, 2015/16-2018/19

The Adjustments Appropriation for 2015/16 include

  • The salary adjustment of R1.2 billion for national departments and R3.8 billion for provinces is the main revision to the expenditure estimates for this year.
  • R720 million for the Department of International Relations and Cooperation to compensate for the depreciation of the rand;
  • R1.2 billion in spending financed out of monies paid into the National Revenue Fund from departmental activities;
  • R1.6 billion in rollovers from unspent balances in 2014/15, including delayed payments to municipalities which had unresolved utility arrears.

I am sure that’s not going to impress students.

But here is an idea that comes from Nene’s MTBPS.

The Employment Tax Incentive (ETI) for young work-seekers continues to attract broad participation. Total claims for the incentive have amounted to R3.9 billion since the start of the programme, up to the end of July 2015. It has been claimed by over 36 000 employers, for over 250 000 workers. There has been active debate around its impact. And ETI will be carefully assessed.

One has to ask the question ‘would the R3,9 billion in ETI incentives not serve RSA better if it was redeployed towards solving the student fee funding crisis?’

I will write more as I go through the documents. But right now, with the chaos at parliament, I have to suspend my thoughts for the time being.


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