Fearless Mboweni treads where his predecessors feared
New officers to administer tough SOE love
The first point finance minister Tito Mboweni made was that the Budget 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, in an election year, Mboweni probably felt he needed to state upfront that he was not playing politics.
The contents of the 2019 Budget, however, speak for themselves. 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%, he could hardly manoeuvre. It was widely expected that he would deliver some relief to Eskom, which is technically insolvent. He did so, but with stringent conditions.
Eskom will get R69bn over three years to support it “during its re-configuration”. Mboweni and public enterprises minister Pravin Gordhan are to appoint a “chief reorganisation officer” to undertake a full operational and financial review of the energy utility. This is how the government is digging in its heels on Eskom’s restructuring, but making it clear it can’t keep “pouring water into a sieve”, as Mboweni said.
“The government is not taking on Eskom’s debt. Eskom took on the debt. It must repay it. We are setting aside R23bn a year to support Eskom during its reconfiguration,” he said. Speaking ahead of the Budget speech, Mboweni said Eskom was “basically under curatorship”. Because Mboweni disregarded 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 take tough decisions to get 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 we are going to provide cash for”, he told journalists.
He said guarantee rules for SOEs also needed to be tightened. However, the contingency reserve is being increased by R6bn to R13bn in anticipation of more 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 support the establishment of the new investigating directorate in the National Prosecuting Authority to pursue 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. Tax has been hiked on 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 of the 126,710 public service workers between the ages of 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: did the Budget do sufficient to ward off another ratings downgrade? Mboweni told the media that Treasury officials had 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 state-owned 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 on to honour guarantees, with major consequences for the public finances,” it stated. 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.