June 16, 2021

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FINANCE MINISTER TITO MBOWENI SPEECH

4 min read
Mid-term Speech by Minister of Finance

Mid-term Speech by Minister of Finance

Minister said they tabled five-year fiscal consolidation pathway that will promotes economic growth while bringing debt under control. The budget will see the country moving from a the ratio of debt- to-GDP at around 95 per cent within the next five years. The economy is expected to contract by 7.8 per cent this year, and 2021 outlook is more uncertain.

The medium-term fiscal strategy narrows the main budget primary deficit from an expected R266 billion in 2021/22 to R84 billion in 2023/24 and we achieve a surplus by 2025/26.

The minister proposed consolidated spending of R6.2 trillion over the 2021 Medium Term Expenditure Framework, of which R1.2 trillion goes to learning and culture, R978 billion to social development and R724 billion to health. That will see the South African economy to grow by 3.3 per cent in 2021,1.7 per cent in 2022 and 1.5 per cent in 2023.

 

The economic context

– Additional 12 000 MW of new electricity capacity will be provided by independent power producers.

-R2.2 billion will support the Social Housing Programme aimed at poor, working South Africans. A further R6.7 billion has been contractually committed to this programme. We expect that the total investment from this programme will be R20 billion over the next 10 years.

-Government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase investment in infrastructure -should their board of trustees opt to do so.

– There is an agreement with all NEDLAC constituencies for the annuitisation of provident funds beginning in March 2021, which will enable all workers to continue to enjoy tax deductions on their contributions.

The NEDLAC constituencies also agree to accelerate the introduction of auto- enrolment for all employed workers, and the establishment of a fund to cater for workers currently excluded from pension coverage, as an urgent intervention towards a comprehensive social security system. Government will present legislation next year to allow for limited pre-retirement withdrawals under certain circumstances linked to mandatory preservation requirements.

 

In April this year, government announced a major fiscal relief package of around R500 billion or 10 percent of GDP, and the money went to:

More than R30 billion for health and other frontline services
Support vulnerable households which is now in excess of R50 billion
More than R40 billion for wage protection through the UIF
Around R100 billion for job creation initiatives, which will now be spread over the MTEF
R200 billion for a credit guarantee scheme
R20 billion towards municipalities to assist them with COVID-19 related activities
R70 billion towards emergency tax measures
During the lockdown, cash grants were paid to over 22 million people, nearly half of the population. The Special COVID-19 Social Relief of Distress grant reached six million people. The temporary increases in other grants will unfortunately have to come to an end.

 

R12.6 billion was allocated in this financial year to the game-changing employment initiatives championed by the President.

– R7 billion will support jobs at fee-paying public schools and government-subsidised independent schools.

– R600 million goes to employ early childhood development and social workers.

– R2 billion is allocated to Working for Fire, Working for Water and Working for Forests.

The rest of the allocation from the employment initiative is divided between the transport, arts, sports and culture, health and agricultural sectors. The revised Division of Revenue for 2020/21 proposes allocations of R806.7 billion to national departments, R628.3 billion to provinces and R139.9 billion to local government.

 

Net in-year spending adjustment

In summary: non-interest spending in 2020/21 is unchanged relative to the Special Adjustments Budget at R1.6 trillion.

All additional pressures have been accommodated through adjustments elsewhere.

Net in-year revenue revision

Gross tax revenue is revised down but this is offset by other receipts into the National Revenue Fund.

Main budget revenue is now projected to be R1.6 billion less compared to the Special Adjustment Budget.

Debt service costs

Debt service costs are revised down by R3.4 billion, in part because borrowing costs are lower than expected.

 

The government is borrowing at a rate of R2.1 billion per day. An uncontrolled increase in borrowing costs would harm small businesses, ordinary South Africans and the poor the most. As the country borrow more, we pay even more and the country have not been spending on infrastructure, which creates long-term growth.

Consideration will be given for across-the-board compensation pay reductions to management-level positions, across national, provincial and municipal governments, state-owned entities all other senior public representatives.

State-Owned Enterprises

– R3 billion was allocated to the Land Bank in June. Minister said the Bank will require an additional R7 billion over the medium-term to support its restructuring.

– R10.5 billion is allocated to SAA to implement its business rescue plan. This allocation is in addition to the R16.4 billion allocated over the 2020 MTEF in the February Budget for settling guaranteed debt and interest.

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