Tough juggling act for Tito today

MINISTER NEEDS WISDOM OF KING SOLOMON His decisions will, without exception, be politically unpopular in the short term.

It will require the wisdom of King Solomon to find immediate solutions to South Africa’s most pressing needs, without lapsing into a downward fiscal spiral.

This is the challenge Finance Minister Tito Mboweni is confronted with as he prepares to deliver his budget speech today.

With an election around the corner and the nation clinging to its last investment grade rating, while economic growth continues to disappoint, the stakes are high. The power utility has been struggling to keep the lights on and its growing debt burden of more than R400 billion has been a major point of concern.

It seems likely that government will take on some of this debt; however, without a major overhaul, which would need to include restructuring the utility and cutting costs, this may trigger a downgrade from Moody’s.

The national carrier said on Monday that it was redesigning its organisational structure into three business units focusing on international, domestic and regional operations respectively, and needs a liquidity injection of R4 billion in the 2019-20 financial year. Also, last Friday it said it will pay its rival Comair R1.1 billion to settle a protracted dispute about anticompetitive behaviour. South Africa’s low economic growth figures have hampered efforts to create jobs and address unemployment, but have also weighed on revenue collection – and mismanagement at SA Revenue Service has not helped.

The medium-term budget policy statement in October projected that growth would improve to 1.7% this year. The recent forecasts suggest growth could be between 1.3% and 1.5%. While revenue collection growth in the fiscal year through December has not been as buoyant as Treasury expected in February (corporate and personal income tax collection have disappointed) expenditure growth has also lagged projections.

The question is: to what extent will the projections catch up during the remaining two months of the year, and what impact will this have on the projected budget deficit of 4% of gross domestic product in 2018-19? Government’s major sources of tax income – value-added tax, personal income tax and corporate income tax – are highly unlikely to be adjusted. At least as far as the actual rates are concerned.

Small changes are however expected, but these won’t raise significant additional taxes.