A hard-truth response to a difficult fiscal fix
Ranjeni Munusamy Insight
The first point finance minister Tito Mboweni made was that the National Budget delivered on Wednesday is “in the interest of our people and our country, and not in the narrow objectives of any political party”.
“It is to safeguard the sound financial status of the Republic,” he said.
No previous finance minister has had to make this point.
In his maiden speech, and in and election year, Mboweni probably felt he needed to state upfront that he was not playing politics.
The contents of the 2019 Budget, however, speaks for itself.
A no-nonsense, hard-truth response to a difficult fiscal fix was required, and there was no space to swing election messages.
With the deficit growing to R243bn, and economic growth revised down to 1.5%, Mboweni could hardly manoeuvre.
It was widely expected that the finance minister would deliver some relief to Eskom, which is technically insolvent.
He did so, but with stringent conditions, making it clear this was not a handout.
Eskom will get R69bn over three years to support it “during its reconfiguration”.
Mboweni and public enterprises minister Pravin Gordhan are to appoint a “chief reorganisation officer” in the next few weeks who will undertake a full operational and financial review of the energy utility.
This is the government digging in its heels on the process of restructuring Eskom, making it clear that they cannot keep “pouring water into a sieve”, as Mboweni put it.
“I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt.
“It must ultimately repay it. We are setting aside R23bn a year to financially support Eskom during its reconfiguration,” he said.
During a media briefing ahead of the budget presentation, Mboweni said Eskom was “basically under curatorship”. He said there should be a negotiation forum for all stakeholders – including the labour unions, management, municipalities and the energy regulator – to discuss the way forward regarding President Cyril Ramaphosa’s announcement that the utility is to be unbundled.
Because Mboweni disregarded the politics, he dared to tread where other finance ministers might not have.
“The SOEs pose very serious risk to the fiscal framework.
“Funding requests from SAA, SABC, Denel, Eskom and other financially challenged stateowned enterprises have increased, with several requesting state support just to continue operating.
“Isn’t it about time the country asks the question: do we still need these enterprises?
“If we do, can we manage them better? If we don’t need them, what should we do,” Mboweni asked.
This was met with howls from the DA benches. DA leader Mmusi Maimane said afterwards that the Budget speech should not be the place to ask “philosophical questions” but to take tough decisions like getting rid of failing SOEs.
Instead, Mboweni’s response was that any SOE requiring funding in future should have a chief reorganisation officer.
This will give the government “ears and eyes inside every SOE that we are going to provide cash for”, he told journalists.
Guarantee rules for SOEs also needed to be tightened he added. However, the contingency reserve is being increased by R6bn to R13bn in anticipation of further rescue funding. Apart from the R69bn allocated to Eskom, increases were limited to R5bn for infrastructure and R1.3bn for the 2021 Census.
The Zondo commission, which was extended to February 2020, gets an additional R272.9m.
Mboweni said the national treasury and the department of justice will work swiftly to support the establishment of the new investigating directorate in the national prosecuting authority pursuing state capture cases.
But it was the bad news that took up the bulk of the shortest budget speech in recent history.
Tax revenue fell R15.4bn below the 2018 MTBPS estimate, limiting relief on personal income tax.
Meanwhile consumers will pay more for alcohol, tobacco products and fuel.
Mboweni announced spending cuts of R50.3bn over the medium term – 54% of which is an anticipated reduction of the public sector wage bill.
He said the government wants to scale up early retirement without penalties so that older employees will be allowed to retire early, with younger employees taking their place.
Mboweni said if 30,000 employees of 126,710 of people between 55 and 59 take up the offer, the state would save an estimated R20.3bn.
This eases into the controversial issue of reducing a bloated public service.
The big question was whe- ther the Budget did enough to ward off another ratings downgrade.
Mboweni told the media that treasury officials have been having “very, very difficult conversations” with ratings agencies.
He said the steps taken to cut debt and reform the energy sector should be “viewed positively” by the agencies.
But the treasury itself told the true message of South Africa’s financial position in the Budget review document.
“The main expenditure risk to the fiscus stems from stateowned companies.
“If reforms to restore their financial sustainability are unsuccessful, risks from associated contingent liabilities, alongside requests for fiscal support, may materialise.
“In the event that entities are unable to refinance debt, the government may be called upon to honour guarantees, with major consequences for the public finances,” the document states.
Given that the government guarantees 54% of the total debt of SOEs, South Africa is in a parlous financial state – and even a jolly finance minister can do little about this.
Any SOE requiring funding in future should have a chief reorganisation officer