Reforms to steer SA’s economy
The Medium Term Budget Policy Statement plots the way forward for the country’s economy
Government has announced the proposed reprioritisation of R32.4 billion over the next three years as part of reforms to boost the South African economy.
In the Medium Term Budget
Policy Statement (MTBPS), National Treasury said that the structure of South Africa's economy is not conducive to high growth or job creation.
“These include creating policy certainty in the mining and energy sectors by finalising the Mining Charter and updating the Integrated Resource Plan,” said National Treasury in the statement.
It added that growth-enhancing policy initiatives are also underway in the telecommunications, electricity and transport sectors.
“To support these reforms within a constrained fiscal framework, government is proposing reprioritisation of R32.4 billion over the next three years,” it said as newly–sworn in Finance Minister Tito Mboweni tabled his maiden MTBPS in Parliament.
Of this amount, R15.9 billion will go towards faster-spending infrastructure programmes (including R3.4 billion for school infrastructure and eradicating pit latrines), clothing and textile incentives, and the Expanded Public Works Programme.
The remaining R16.5 billion will be allocated to various programmes, including recapitalising the South African Revenue Service (SARS), a minimum wage for community health workers, critical posts and goods and services in health, and streamlining the management of the justice system.
In addition, changes to grant structures amounting to
R14.7 billion will promote upgrading of informal settlements in partnership with communities.
Meanwhile, housing subsidies amounting to R1 billion will be centralised to better support middleand lower-income home buyers.
“In the current year, R1.7 billion is added to infrastructure spending (including funding for fast-spending school building programmes) and R 3.4
billion is allocated to drought relief, mostly to upgrade water infrastructure,” said National Treasury.
Reforms
Fleshing out the progress of President Cyril Ramaphosa's stimulus package announced in September, the MTBPS further announced a framework for financing infrastructure which will be developed.
National Treasury noted that a decade of poor economic performance and high unemployment has reinforced the urgent need for a comprehensive programme of reforms to change the underlying structure of the economy.
“Necessary structural reforms include modernising the energy, water, transport and telecommunications industries; lowering barriers to entry and addressing distorted patterns of ownership through increased competition and smallbusiness growth and enabling growth in labour-intensive sectors such as agriculture and tourism,” it said.
“National Treasury modelling suggests that such reforms can raise Gross Domestic Product growth by as much as three percent over the next decade.”
The progress that has been made including the Department of Telecommunications and Postal Services gazetting a proposed policy for the licensing of high-demand spectrum.
The communications regulator plans to auction spectrum for 4G services by April 2019 and simultaneously establish a wholesale open-access network to lower the cost of data.
Meanwhile, the departments of Energy and Public Enterprises, and the National Treasury, have begun work to determine how a restructured electricity sector can support long-term growth, a secure energy supply, a sustainable electricity utility and higher investment in electricity generation, transmission and distribution.
“Reviews of administered prices in other sectors, such as energy, are underway. Such reforms can boost long-term growth,” it said.
Rebuilding state institutions
On state institutions, National Treasury said while the process of rebuilding these is underway with the Judicial Commission of Inquiry into Allegations of State Capture among others, challenges remain.
“While the scale of deterioration in the public sector is serious, key institutions established by the Constitution have proven resilient. Parliament, the courts and the Reserve Bank have helped to uncover corruption, with the support of a robust media.”
National Treasury also highlighted its efforts to strengthen financial management which include enhancing public finance capacitybuilding in local government by deploying skilled professionals to manage and recover revenue.
Reprioritising money from unspent funds
National Treasury will reprioritise money from unspent funds and tap into the contingency reserve to recapitalise South African Airways (SAA), SA Express and the Post Office.
Allocations made over the next three years provide an agreed-upon upper limit within which departments prepare their budgets.
“In-year adjustments add
R17.4 billion to spending, which includes [the] recapitalisation of South African Airways (R5 billion) and the South African Post Office (R2.9 billion),” it noted.
The National Treasury said SA Express will get an injection of
R1.2 billion.
“Funding is also allocated to drought relief and education infrastructure. These additions to spending are fully offset by the use of the contingency reserve, provisional allocations, projected underspending and declared unspent funds,” it added.
National Treasury said that government's guarantee portfolio totals R670 billion, of which the largest facility has been granted to Eskom at R350 billion.
By the end of June 2018,
R334.2 billion of government
guarantee facilities for state-owned companies had been used.
Over the next three financial years, guaranteed debt redemptions are expected to average
R26 billion.
“In recent years, access to credit has steadily declined for many state-owned companies, mostly as a result of their weak balance sheets, poor corporate governance and liquidity challenges.
“These entities will find it difficult to refinance maturing debt as investors increasingly require guarantees before they will provide financing.
“As a result, government's contingent liability exposure is likely to remain high.”
National Treasury said in 2016/17 – the latest year for which figures are available – the combined liabilities of national public entities and state-owned companies totalled R1.6 trillion.
The interest-bearing debt of the 10 state-owned companies that borrow most has grown from R266.7 billion in 2009/10 to
R702.7 billion in 2016/17 – an increase of 163 percent in seven years.
This debt is expected to increase to more than R1 trillion over the medium term.
“Although the increase in debt has largely financed capital expenditure, a growing proportion of debt is now financing operations and interest payments.”
Treasury said Eskom, which has a R350 billion guarantee facility, has already used R255 billion and that R35 billion has been approved for specific funding instruments, but has not yet been borrowed.
Despite its weak financial position, which remains a risk that could lead to a call on guarantees, an improvement in the power utility's liquidity position has bolstered investor sentiment and means that it again has access to capital markets.
Denel, on the other hand, has a five-year, R3.4 billion guarantee, of which R2.8 billion has been used.
“Denel will struggle to settle maturing debt on its own because its financial position remains weak. While it implements a turnaround plan, Denel will also contemplate the sale of non-core assets to improve its liquidity position,” the National Treasury said.
A focus on health
In his speech, the Minister said government will reprioritise funds to make R350 million available to recruit new health professionals.
“Access to healthcare services is enshrined in our Constitution and in our Bill of Rights. We will continue to work closely with the national Department of Health and other roleplayers to ensure that the gradual phased implementation of the National Health Insurance is adequately financed.
“We are immediately reprioritising R350 million to recruit in excess of 2 000 health professionals into public health facilities,” he said.
Minister Mboweni said a further reprioritisation of funds will avail R150 million to be used to purchase beds and linen for hospitals where the need is dire.
VAT free items
Government is also proposing that as of April 2019, three items, including sanitary pads, be added to the zero-rated list.
Earlier this year, government increased value-added tax (VAT) from 14 percent to 15 percent. An independent panel of experts to review the list of 19 zero-rated food products was set up to consider how best government could mitigate the impact of the VAT increase on poor and indigent households.
The panel of experts has since released the report and recommended that six items be added onto the list of zero-rated items.
Minister Mboweni said from 1 April 2019, sanitary pads, bread flour and cake flour will be zero-rated.
“The revenue loss associated with zero-rating these items is estimated at R1.2 billion. However, zero-rating these products targets low-income households and restores the dignity of our people,” he said.