October 23, 2018

Finance fundi groups come together to discuss MTBPS

Following the harrowing mini-budget released by the Minister of Finance, Parliament was told by Treasury last week that “tough times require tough decisions”.

The Minister in the Presidency, the Minister of Finance and National Treasury came together in a joint committee meeting to take stock of the Medium Term Budget Policy Statement (MTBPS), which had left citizens reeling at the state of our economy.

The Minister had surprised everyone by not holding back, and giving it to us straight, scoring points for honesty and bravery. These are qualities not often attributed to Malusi Gigaba.

But it seems days later, when the shock had subsided, Treasury was back on form, and the Committee heard again a determined rallying cry like those that we have become more used to.

All is well, sort of. Stay calm and don’t panic, said Treasury. “Working together, we can grow the economy for the benefit of all,” was the opening line in the presentation to the post-MTBPS gathering by Dondo Mogajane, Director-General of the National Treasury.

He continued in that vein, assuring those who were listening that radical economic transformation was still on track “to change the economy to include all South Africans”. And for those who had reason for doubt went on to remind us that “South Africa's budget is progressive and redistributive, and makes large contributions to transformation and growth”.

Treasury concedes its “options are limited. Given that per capita income is falling, the economic impact of further expenditure cuts or tax hikes could be counter-productive.”

Well, that’s a relief, but how is that to be achieved? Treasury had the answer. “The only sustainable solution for our development and the health of our public finances is to grow the economy inclusively.”

To achieve this is going require “trade-offs and compromises” and most important of all, a commitment to fiscal consolidation and the maintenance of an expenditure ceiling. This applies only “over the medium term”, but a presidential task team is in place to develop proposals to restore fiscal sustainability.

If that doesn’t make you feel more confident, keep reading. Page two of Treasury’s presentation opens with “Global economic conditions continue to improve,” and this under the heading: “A window of opportunity”.

This report does not depart entirely from reality. It does concede that South Africa is experiencing poor economic performance with low levels of business confidence and weak domestic demand. Investment declined by 3.9% in 2016, especially in mining and manufacturing capital.

This year saw a sharp deterioration in revenue collection to R50.8 billion, and the projections look even more alarming at R69.3 billion in 2018/19 and R89.4 billion in 2019/20, according to the report.

Treasury reported key fiscal risks in the period ahead. These include:

  • Further revenue shortfalls
  • Compensation budgets
  • Rising debt-service costs rising
  • Funding gaps in infrastructure and social services
  • Financial deterioration in major state-owned companies.

Another report, entitled “MTBPS 2017: An Unfolding Story”, came closest to providing good news with the information that taxes are unlikely to increase. But that’s because South Africa’s muted economic growth will make it increasingly difficult to raise tax revenues. “In the absence of growth, room to expand existing tax bases or create new tax instruments is limited. Increasing tax rates or creating new tax instruments may, in fact, further undermine growth.”

What is a government that finds itself in such a position to do? Treasury concedes its “options are limited. Given that per capita income is falling, the economic impact of further expenditure cuts or tax hikes could be counter-productive.”

But Treasury is not put off by what it calls the low growth trap and declares government ready to take decisive action. “Hard choices are required to break out of the low growth trap.

“A new cycle of inclusive development requires intervention to stimulate activity, ensure effective regulation, improve competitiveness of manufactured exports, promote localisation and reindustrialise the economy, together with renewed attention to the capacity of the state.”

It gives a list of activities that will “boost confidence” in our economy. For example, we are told, SAA has been recapitalised, licensing of Postbank is under way, a fund for small business ideation and start-up is being set up and there are currently “engagements” on the Mining Charter following its postponed implementation. Clearly, all is not lost.

The confidence-boosting list includes the news that “Negotiations on the next public-service wage agreement have commenced,” even though most South Africans approach public wage negotiation season with some trepidation. Everyone knows the country can barely afford the current public service wage bill, especially given that, as Treasury says, it tends to have “increasingly crowded out other areas of spending, including complementary inputs that public servants need to do their work”.

Apart from Treasury, the Minister in the Presidency, Jeff Radebe, also gave a reportback, this one on the "Mandate Paper" approved by Cabinet in August and publicly launched in September. Its aim is "to guide budget allocations in line with the National Development Plan (NDP)", as he said at the launch.

The objective of the Mandate Paper was to achieve the NDP’s goals of eradicating poverty and reducing inequality by 2030 through the creation of jobs and accelerating inclusive economic growth.

The role of the Mandate Paper in achieving this end is to strengthen the alignment between the Budget, the Medium Term Strategic Framework (MTSF) and the NDP, and guide the budget process for 2018.

Radebe’s report noted: “The Mandate Paper aims to guide all spheres of Government and all Government entities to refine plans and develop budget proposals.

“It seeks to reinforce initiatives that have the greatest growth and transformative impact in terms of the NDP goals and targets and that must be prioritised in the budget and in decision-making. In this regard, the Mandate Paper is firmly focused on the outcomes spelt out in the NDP and the MTSF, of a decent life for all South Africans, the eradication of poverty and the reduction of unemployment and inequality.”

The DA’s David Maynier took offence at not being permitted to see the Mandate Paper in advance. He told the hearing that this makes the Minister in the Presidency a de facto Prime Minister and “budget tsar” at the expense of the Minister of Finance.

In the end it seemed the only one talking sense in the room was the Minister of Finance. In his presentation he once again pulled no punches saying citizens need to know the challenges the country is facing.

His message was clear and cannot be disputed: Times are tough and the nation now has to be tougher than them.

Moira Levy

Information for this article was sourced from the Parliamentary Monitoring Group.

Last modified on Tuesday, 16 January 2018 18:25

About Us

Notes from the House is an independent weekly email newsletter that tracks and monitors Parliament in its role of holding government to account and passing legislation to improve people’s lives. It aims to bring you the news from Parliament that you don’t get elsewhere. Published by Moira Levy with the support of the Claude Leon Foundation.

Latest Tweets

Parliament is broken. Can it be fixed? https://t.co/mJ6DTl15Gg
Is a staff #suicide at @ParliamentofRSA all about security failure or a management failure? This says a lot about… https://t.co/5Fuj2Z0Y3L
Follow Notes from the House on Twitter