Finance minister Enoch Godongwana stuck to his predecessor’s pledge to cut corporate tax and provide relief to workers while resisting pressure to use an almost R200bn revenue windfall to commit himself to a permanent increase in welfare spending.
In a market-pleasing budget, Godongwana pledged to maintain fiscal discipline and said SA would record a primary surplus, meaning that revenue will be higher than spending excluding interest payments, a year earlier than planned. Officials said 45% of the extra revenue would be used to pay down debt and reduce the deficit, with the rest used to pay for the Covid-19 grant, allocations to provinces, financial support for students and health.
Godongwana, who replaced Tito Mboweni in August 2021, made no further commitment to increase welfare spending other than to confirm a one-year extension of the special relief grant for the unemployed, which will cost R44bn and was already flagged in President Cyril Ramaphosa’s state of the nation address earlier in February.
The National Treasury signalled that it would push back against pressure for permanent increases in welfare spending, which could entail further borrowing, cuts to other services and higher taxes.
While broadly welcoming the budget, analysts were sceptical that the Treasury would ultimately be able to resist pressure for permanent increases in welfare spending or further bailouts for failing state-owned enterprises (SOEs). Its pledge to keep expenditure growth near the bottom end of the Reserve Bank’s 3% to 6% inflation target range is also subject to it holding the line on wage settlements with public sector unions.
Analysts also questioned whether the revenue assumptions are too optimistic.
Individual taxpayers got an unexpected R13.5bn break through an adjustment of personal tax brackets in line with inflation, while a freeze on the fuel tax levy — the first since 1990 — delivered another R3.5bn. The corporate tax cut will see the government forsake revenue of R2.6bn, though that was clawed back via other measures by limiting deductions.
It was made possible by an almost R200bn overshoot in revenue relative to forecasts in the 2021 budget. Most of that came from a R182bn outperformance in the tax take, while mining and petroleum royalties contributed R12bn.
The revenue overruns enabled Godongwana to report a much-improved fiscal outlook, with the government projecting a budget deficit of 5.7% for the current year, compared with an estimate of 7.8% from November. It will narrow further in the medium term to 4.2% by the 2024/2025 fiscal year.
The debt-to-GDP ratio is expected to have come in at 69.5% in 2021/2022, little changed from the 69.9% projection in the medium-term budget statement. But it improves in outer years and the government now sees it peaking at 75.1% in 2024/2025, down from a previous forecast of 77.8%.
The government made no new provisions for SOEs, other than allowing Eskom to use its state guarantee to access funding and redeem some of the debt that is coming due.
Godongwana had some tough words for the utility, which he said had not improved since 2008, despite the money it had received from the fiscus. “Let’s see some action from Eskom,” Godongwana said. “Let’s see a turnaround plan, and let’s see them sell assets.”
The Treasury said it expected inflation to average 4.8% in 2022 and 4.4% the following year. It expects the economy to expand 4.8% in 2021, then slow down to 2.1% in 2022, before averaging 1.8% in the following two years.
Some economists argued the growth forecasts are too optimistic, and others pointed to “execution” risks for an administration that has a poor record of delivering on promised structural reforms.
With EFF supporters outside parliament protesting against the government’s decision to get funding from the IMF and World Bank, deputy finance minister David Masondo argued that those who are concerned about the country’s sovereignty could help by supporting the government’s efforts to implement reforms to boost the economy and control debt.
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