No Sparks flying from Mid-Term Budget - only Concerns

24 Oct 2018 | R M Ertner
Mboweni presents Budget without Sparks

It was Tito Mboweni’s first real appearance, not an easy feat to step in front of Parliament and Public with a Mid-Term Budget that was almost solely concocted by his corrupt predecessor, the Butcher of Finance Nhlanhla Nene. He and his team had ample time to prepare and when Mboweni took over only weeks ago there was hardly any time to establish his own course. But would that have really been so much different from what was presented yesterday?

Any current Minister of Finance has very little to work with. The South African economy is treading water at one place with 0.7% anticipated GDP growth, a projection that we do not share. However, what we share are the facts: South Africa is in a recession and the inflation rate, officially quoted with 4.9% is only so low as the fiscal masterminds have changed the underlying product and service basket so many times that the figures look pleasant. The reality is different. The weak Rand contributes to an imported inflation far beyond the 3%-6% corridor and coupled with an increase of the price for the barrel crude oil more than doubled between February 2016 from USD 35 to USD 73 in September 2018. SARS reports revenue down

His statement that “… a combination of policy certainty, growth-enabling economic reforms, improved governance, and partnerships with business and labour will be key to restoring confidence and investment …”! This comes as a practical joke with nobody laughing as the reality is showing the opposite. There is no policy certainty with regard to Land Expropriations, future Visa rules, procurement practices in the public sector as well as BEE. There is no sign of economic reforms whatsoever, Nene must have choked this statement up as public governance is basically non existing and labour is surely not positioned to create any confidence. Labour has let the wild strikes get out of control, public looting is the game of the day and a blatant refusal to cooperate with business but shiny promises to the union members to fight for two digit salary increases. Not sustainable and not palatable for any branch of the industry and it has left a revenue gap of ZAR 30.2bn due to public wage increases above inflation.

The government lies shamelessly and we were witness at a roundtable discussion that the DTI tries to portrait South Africa as booming investment destination and more investments than ever are coming. That is not true and they should know better, e.g. why Volkswagen did not increase manufacturing facilities in Uitenhage but instead starts now manufacturing in Rwanda… Meanwhile Ramaphosa’s plan to attract 100bn USD investment into South Africa can already be considered as epic failure.

But back to Mboweni, to whom we were listening when he addressed the ZAR 50bn stimulus package for the economy and to reveal where this budget should come from. Please remember, the Budget Deficit is at 27.4bn Rand and will increase to R 85bn over the next three years, while debt service costs will increase to 18% of government expenditures in 2026. Government spending will reach the ZAR 2 trillion mark by 2021 while SARS is ZAR 20bn behind with VAT repayments and the slow economy will lead to a further reduction of ZAR 7.6bn in corporate tax collection. On top of it, three items – white bread flour, cake flour and sanitary pads – will be zero-rated from next year, which will reduce revenue by a further ZAR 1.2bn.

SA’s economy would need to grow roughly 8 times as fast as it is expanding at the moment to the start balancing the shortfalls, reduce the budget deficit and to set a downward trend for unemployment. Hell will rather freeze over than this will happen!

While still waiting for Mboweni revealing his joker from where the R 50bn stimulus will appear, he presented the unpalatable figures to continue funding the black holes in form of State Owned Enterprises (“SOC”). Among other scandalous funding targets are again ZAR 5bn for SAA and another ZAR 2.9bn for the long obsolete Postal Services. He had us speechless and worried, what does Finance have in their hands against Pravin Gordhan, who cannot be in agreement with this step? A total waste of funds and instead of selling the assets of those SOCs to reduce debt and debt services almost 1% of the new budget goes to funding these rotten enterprises.

Finally the stimulus package was addressed and the disappointment was omnipresent in the room and outside in the the country. No firm plan, no Manuelesque rescue maneuvers and incentives, but on top of it the statement as to the source of those funds: “Funding will be sourced from under-performing and non-performing areas” No what the heck shall that mean? Only one interpretation is reasonable: the finance minister has no idea where to get the budget and hopes for a gap opening soon to intervene and re-allocate existing budgets. Dream on! That is as ridiculous as irresponsible!

In summary: the South African Economy, limping in bandages towards the fiscal abyss has received another kick in the shins and should stumble soon so hard that it is beyond recovery. Reason and overdue drastic measures have been sacrificed on the altar of ignorance and status quo, no sparks where flying, just a column of smoke appeared over the economy stemming from a fire that is yet to be put out but with the Fire Brigade remaining absent!

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