For students and presenters interested in monitoring the fiscal metrics, the Treasury has added a cool new “dashboard” to the impressive array of publications that accompany the budget speech.
It provides 13 illustrative graphics with data for the past four years and three years ahead on the consolidated budget, revenue trends, debt, compensation of employees and the composition of spending, classified in various ways.
One set of graphs shows how for every R100 spent on debt service costs next year, R146 will be spent on learning and culture, down from R192 in 2018/19; R78 on community development, versus R104 four years ago.
This, in a nutshell, is the message of the 2022 Budget. Debt has been increasing too fast, fiscal consolidation remains the overwhelming priority.
Thankfully, the Minister was able to report progress. Debt will peak at 75.1% of Gross Domestic Product (GDP) in 2024/25, a year earlier than the 78.1% peak projected in the October 2021 Medium Term Budget Policy Statement. The Budget Review states that a primary surplus – revenue exceeding non-interest expenditure – will be achieved by 2023/24: “Achieving this objective will enable government to bring consolidation to a close.”
But the medium-term budget framework does not ease the vice-like grip on spending that the Treasury has imposed since 2019. Public service remuneration remains essentially flat in nominal terms, the social relief of distress (SRD) grant is extended only to March 2023, the Presidential employment initiative is funded only until March 2024 and consolidated expenditure, including unallocated reserves, increases by just 3.2% a year over the Medium-Term Expenditure Framework (MTEF) period.
Substantial additional allocations were made to accommodate the SRD grant, National Student Financial Aid Scheme (NSFAS) student grants, provincial health and education salary costs and municipal services. Almost everything else faces declining allocations in real terms. The budget includes over R20 billion a year for Eskom, large allocations for South African Special Risk Insurance Association (SASRIA) (to cover business insurance claims associated with the 2021 KwaZulu-Natal and Gauteng unrest) and a capital injection for the Land Bank, but the Minister emphasised again his “tough love” approach to state-owned companies in distress. There was no funding for South African Airways (SAA), which makes Minister Gordhan’s announcement that the Takatso sale agreement has been concluded something of a puzzle – it is not clear where the necessary working capital will come from.
On the revenue side, there is some relief. Personal tax brackets are adjusted for inflation, the corporate tax rate will come down from 28% to 27% next year, the fuel levies were not increased and the alcohol and tobacco tax increases were moderate. The Treasury’s view is that an increase in the tax burden would inhibit economic recovery; but it cautions that tax increases or spending cuts will be necessary if the extended SRD grant becomes a permanent commitment.
The overall fiscal position is much improved – whereas the 2021 Budget anticipated a consolidated deficit of 9.3% of GDP it turned out to be 5.7%. This is partly because Statistics South Africa revised its GDP estimate up by over 10% last year. But it is mainly because revenue turned out to be R200 billion more than was anticipated in February last year. This is a staggeringly large increase – over 13%. Over half of the revenue windfall was in company tax receipts, mainly from mining companies. But there were gains in all the main tax categories, and in non-tax revenue.
Commentators on the budget have cautioned that the commodity-related revenue gains cannot be regarded as permanent. The Treasury echoes this concern in the Budget Review, and its GDP and revenue projections for the next three years are accordingly cautious – nominal GDP growth of 5% a year with revenue increasing at an average rate of 4.7%.
Real GDP growth for the three fiscal years is expected to be just 1.8% a year with GDP inflation of around 3.2% a year.
The South African growth momentum is arguably already stronger than this. One encouraging sign is buried in the Treasury’s own analysis of revenue trends. Table 4.5 in the Budget Review indicates that there are now 7.4 million individuals with incomes above the personal income tax threshold. A year ago, the Treasury’s estimate was less than 7 million.
Public comment on the budget has been more varied than usual. Some think the projections are too optimistic, others that the Treasury has under-estimated growth and the turnaround in business prospects. Such an austere expenditure outlook for another three years seems implausible. A wide range of pressing issues remain unresolved – the liabilities of the Road Accident Fund, Eskom’s balance sheet, the Post Office, municipal service delivery, dysfunctional Technical Vocational Education and Training (TVET) colleges and skills training and maintenance of infrastructure, for example.
It is as if Minister Godongwana, in his first budget, has opted for a holding operation. Not yet sure of the path ahead, he wants more time to review options and consult.
There has perhaps never been a better time for SALDRU and the policy research community to focus efforts on what needs to be done to accelerate inclusive growth, and how to shift budget priorities and programmes towards employment.