Mboweni feels the heat
All eyes on Eskom crisis and revenue shortfall
It will be finance minister Tito Mboweni’s first national budget. It may also be his last, assuming he was serious when he told a roomful of economists last month he wouldn’t be coming back after the election.
But if he had hoped to leave a positive legacy, he may have discovered in his short tenure that the state of SA’s public finances is too dire for any such ambition, with an at least even chance that the budget this week could be the one to trigger the long-feared downgrade by rating agency Moody’s.
Mboweni had hardly put his feet under the finance ministry desk when he had to present an October medium-term budget policy statement (MTBPS) that showed growth was expected to be weaker, tax collections would fall well short of February’s forecasts, the deficit had deteriorated sharply and the public debt ratio would worsen more than previously expected and would take longer to
But if the MTBPS was little more than a holding operation, markets had expected that tough decisions might be taken, especially on the spending side, to ensure that the main budget this month would look a lot better. But that’s not going to happen and if anything, the deficits and debt ratios that Mboweni will report on Wednesday could be worse, with tax collections deteriorating sharply since October.
Corporate tax collections actually fell in December, while personal income tax collections came in well short of budget expectations. VAT collections outperformed, but this was not enough to counter the underperformance in the other two big taxes.
For the first nine months of the fiscal year, revenue growth was 7.6% instead of the revised 8.3% projected in October and PwC tax policy leader Kyle Mandy predicts that revenue will come in R10bn short even of October’s revised number. Treasury had already factored stabilise. in a R27bn revenue undershoot for the current year, mainly to reverse the mess former South African Revenue Service commissioner Tom Moyane made of the VAT refund system.
Next year’s revenue will also fall short and, in the absence of any action on the spending side, the fiscal deficit – the gap between revenue and expenditure – could again widen.
What could counter the worse-than-expected revenue to some extent is that government spending is also running behind budget for the year to date – up 5% instead of the budgeted 7.7%. But there could well be a last-minute, pre-election splurge in spending while revenues could even get worse.
PwC sees the consolidated budget deficit widening to 4.3% for this year and 4.7% next year, compared with the Treasury’s 4% and 4.3% October forecasts. Other economists see the deficit coming in unchanged or only slightly worse despite the large revenue shortfall.
It can’t have helped that Mboweni has by all accounts been a fairly absent and disengaged minister – insiders say he hasn’t spent much time in the Treasury offices – nor that the necessary tough spending cuts, in the ballooning wage bill in particular, were ever likely in an election year.
But the mega issue this week, the one that could derail all the fiscal numbers (and derail even SA’s modest economic growth), is Eskom’s crisis – financial and operational – which puts question marks over growth forecasts and more immediately raises the question of how Mboweni will deal with Eskom’s request to take R100bn of its debt onto the state’s already strained balance sheet.
President Cyril Ramaphosa made a vague promise of government support for Eskom in his state of the nation speech, promising this would be done “without burdening the fiscus with unmanageable debt” and that Mboweni would provide details. Moody’s signalled that it would downgrade SA’s rating if the government provided any such support without immediate and “unpopular” measures to cut Eskom’s costs.