Tito’s tough job with high debt
BUDGET: URGENT ECONOMIC REFORMS ARE REQUIRED
Load shedding, coronavirus ‘can play part’ in low growth.
The 2020 budget speech would be the toughest since 1994 as Finance Minister Tito Mboweni has to find means to reduce the country’s high debt levels, economists say.
Mboweni will on 26 February table the budget for the 2020-21 financial year in parliament.
But urgent economic reforms are required to grow the country’s economy to a level equal to that of population growth. This year would mark the sixth consecutive year that the country’s gross domestic product (GDP) declines due to the growing population rate, PriceWaterhouseCoopers’ chief economist Lullu Kriegel said.
Speaking at a panel discussion on the budget review yesterday, experts from the auditing firm predict another low 0.6% GDP growth, as opposed to the predicted 1.2% growth by the South African Reserve Bank (Sarb).
Factors such as load shedding and the recent global coronavirus could play a part.
“It would be unbelievable if National Treasury comes with anything higher than the Reserve Banks number … In the 1.2% that Sarb put forward, they say they have factored in the effects of load shedding. We have also factored that in when we came to the number of 0.6%,” Kriegel said.
Due to the weak employment growth, only 20% of the population contributed to personal income tax – the largest source of tax revenue.
Head of tax policy Kyle Mandy expected tax revenue to be between R57 billion and R65 billion lower than the 2019 budget estimate – between R4.5 billion and R12.5 billion lower than the revised estimate in the medium-term budget policy statement (MTBPS).
“The situation has deteriorated since the MTBPS. Based on the December budget, that number could be higher and we are looking at a significant downsize risk. Revenue collection has deteriorated over the last few months. It could potentially reach R20 billion,” Mandy said.
For a more positive fiscal, Mboweni would need to prioritise reducing expenditure. This could be in the form of cutting the government wage bill, Kriegel said.
“A strong message and action on curbing staffing costs is needed to increase confidence in the government’s ability to improve the fiscal situation.
“Mboweni should identify expenditure that can drive economic growth. We will have to look at government’s wage bill, which could be a very unpopular decision. I think he has the will but I am not sure he has the support to do that,” she said.