What to expect from the upcoming Mid-Term Budget?
Spoiler Alert, the answer is “nothing”!
The upcoming Medium-Term Budget on 24 October 2018 will not go down in history as to be remembered, you can be sure of that! Newly appointed Minister of Finance and former Reserve Bank Governor, Tito Mboweni, has not had enough time to develop his own fiscal policy and beside that he is tasked to administer funds within such high fiscal as well as political constraints that there is virtually no room for a “big one”. The budget to be presented had long been done by the team under Nhlanhla Nene and he will more or less read out his predecessor#s findings.
But that does not mean we are not looking forward to Mboweni’s new office and especially him sharing his vision where the fiscal future of this country may lead, as we have problems!
South Africa is facing nin-existing growth and a widening budget deficit due to frequently missed revenue collection targets. The state debts are mounting and most of the State-owned enterprises are in fiscal dire straits, led by SAA awaiting another two-digit billion Rand bailout. The news we are awaiting here is rather coming from Pravin Gordhan’s office than from the finance minister as the country needs Gordhan to show his balls and with SAA, SABC and Postal Services “go for broke”, close shop and sell remaining assets.
ESKOM needs to be taught a lesson or two and the white elephants, who turned into fiscal black holes – Medupi and Kusile – need to be closed down and sell what is salvageable. Those will never operate as ESKOM lacks the skills and the low level of corruption that is needed to complete, operate and maintain within economic feasible boundaries.
The current fiscal trajectory is known and will remain unchanged, pending the R 50bn stimulus announced by President Ramaphosa earlier this year. But what might have been pre-election lip service would require a budget position that needs to come out of another, already allocated budget. Which one to choose? Housing, Education, Social Welfare, Health …. all budgets that are stretched already to the max, leaves government and defence, the two holy cows no politician wants to tackle, especially not 6 months prior to the General Elections. That would be political suicide!
Where else to get funding? Loans are out of the question as the debt service is already questionable in light of Moody’s and S&P’s credit ratings. Local Bonds – who wants to buy R 50bn in bonds under a government that has the exonomic expertise of a bunch of part-time clowns? Raising VAT even higher? Sure there is still room compared with other countries, but the recent hike is not even fully digested and the inflationary pressure still mounting, this would be a desperate and ill-advised move. On top of it there is are still the recommendations of the Woolard Panel in the room, to add more products to the zero-VAT—rated list in order to alleviate poverty, but to the tune of R 4bn loss in revenue.
The governmental expenses climb annually by 6.8% while the economy currently shrinks by 0.2%. That leaves a gap that widens by 7% every year, hence the answer is to radically curb government spending. Yes, the millions of public servants need to see at least 30% – 40% go, salaries in politics and SOC need to be cut or at least frozen and government needs to be reduced, meaning a lower number of MPs and of state departments. Not possible? Watch and learn, our neighbour Zim is now leading by example!
This country needs a drastic course correction, but that will not come in the Mid-Term Budget, it will also not come in February 2019 – eight weeks before elections. It might simply come from a Minister of Finance of DA, EFF, UDM or IFP forming the long-awaited coalition leading the country at the time of the next Mid-Term Budget in October 2019 after the ANC has lost its malevolent position as butcher and undertaker of South Africa’s economy.