Finance Minister Enoch Godongwana will have to strike a difficult balance as spending priorities compete for limited resources when he presents the Medium-term fiscal policy statement Wednesday.
Economists say the priority of the National Treasury’s medium-term plan will be Eskom’s debt, public wage bill and social assistance amid rising living costs and high unemployment.
The statement of medium-term budgetary policy is set against the backdrop of a difficult economic environment.
The global economy is slowing and financial conditions are also tightening.
The cost of living is rising due to rising food and fuel prices, exacerbated by the war in Ukraine.
The national treasury is expected to revise expected growth downwards as heavy load shedding continues to dampen growth.
However, the revenue forecast is expected to be higher than February estimates.
Economists say personal income tax and value added tax remain robust.
Corporate tax is supported by a surge in commodity prices that has boosted revenues for mining companies.
Jannie Rossow is a visiting professor at the Wits Business School: “South Africa is going through a prolonged period of weak economic growth for the reasons you have mentioned and to this, of course, must be added the fact that Eskom cannot provide enough electricity for the economy on a basic basis. Thus, the government would be fooling itself and South African taxpayers if it gave the impression that the economy is going to grow at a much faster rate. Unfortunately, South Africa’s growth potential has now declined between 1% and 1.5% per year in a sustained manner over a period of time. The government needs to accept this and plan accordingly for at least the MTBPS period. Say, the next 3 or 4 exercises.
Among the government’s competing priorities is Eskom’s R400 billion debt.
The government has also come under pressure from lobby groups to introduce a basic income allowance, a move some say the state cannot afford.
Unions are also pushing for a higher pay deal.
Citadel Chief Economist Maarten Ackerman says, “On the expense side, unfortunately, it has been difficult. The most important, as you mentioned, are the payroll and negotiations on salary increases. Currently, this represents 40% of the budget. So if we can’t get a handle on that, it takes money away from where we have to spend on things like infrastructure, health care, and so on.
Ackerman adds, “The other thing that’s pretty big this year is additional support for a lot of state-owned enterprises and also KZN flood relief, and now we’re in a situation where you know Transnet is also considering a potential support. Otherwise they could become another Eskom so to speak. So government spending is under pressure and that’s why in terms of wage negotiations they want to avoid strikes as much as possible. But you want to get to something lasting so that we can really get the debt to GDP ratio under control.
Fiscal deficit and debt ratios are expected to improve thanks to better than expected revenue collection. But high debt levels and service charges remain a problem.
Investec Chief Economist Annabel Bishop said: “We expect debt and deficit ratios to be lower than previously forecast. This would obviously move or is a move towards fiscal consolidation for South Africa and of course this will also affect the next two years. However, there is of course the risk that high borrowing costs will persist for longer and there is no doubt that the National Treasury will take this into account in its expenditure and revenue forecasts, which will reduce some of the movement to the decline that we could have seen in the budgetary indicators. ”
Economists say that if the government pursues the right structural reforms like the recently announced power generation interventions, then economic growth could likely reach levels that could make a difference to socio-economic challenges.