MTBPS lacks credibility and is unreliable, MPs told

The medium-term budget policy statement (MTBPS) tabled in parliament last week by finance minister Enoch Godongwana lacks credibility and is unreliable, the Public Economy Project at Wits University told MPs on Wednesday.

The project led by the former head of Treasury's budget office, Michael Sachs, is part of the Southern Centre for Inequality Studies at the university.

The comments by the project's researcher, Rashaad Amra, were made during public hearings held by parliament’s two finance committees on the MTBPS, during which there was strong criticism of the “austerity” budget statement focused on fiscal consolidation, by the Institute for Economic Justice and the Budget Justice Coalition.

They said this will see spending on health and education decline in real terms and a significant real decline in per capita spending over the next few years. Instead of aiming for a primary budget surplus, the focus should be on addressing unemployment, poverty and inequality and the realisation of human rights, the civil society organisations said.

The engagements prompted ANC MP Noxolo Abraham to suggest that “a time should come for us as a committee to reject the budget because we are mandated by the ANC, which is in power right now, to vigorously conduct oversight of government departments”. This would have to be done she said if the committee felt that the budget was not working for the people. She noted that the MTBPS gave no emphasis to gender in a country facing an epidemic of gender-based violence.

Chair of the National Council of Provinces select committee on finance Yunus Carrim agreed with Abraham’s comments and said parliament needed to play a more “activist role”.

Amra said while the MTBPS presented a significantly improved outlook for public finances, this was based on short-term gains from the commodity boom, which would not continue. There was no prospect, he said, that fiscal consolidation would come to a close in the next three years, as the MTBPS projected.

The significant decline in real per capita spending on core services in 2023/2024 to achieve fiscal consolidation and the reduction in headcount was likely to continue, particularly in the education, health and criminal justice sectors.

The MTBPS presents a debt stabilisation trajectory over the next three years with the achievement of a primary budget surplus (where revenue exceeds non-interest expenditure) projected for 2023/2024.

The Public Economy Project questioned the credibility of these forecasts as it believes the spending projections in the MTBPS are “implausible”. The total unallocated reserve of R89bn for 2024/2025 and 2025/2026 marked a deterioration in public finances as there was no clear commitment to future spending; for example, on the social relief of distress grant beyond March 2024; no budgeted increase for public-sector wages; no budgeted increase for the presidential employment programme; and no provision for the debt service costs due to the takeover by government of Eskom debt.

“The decision to not include expected improvements in remuneration over the medium-term expenditure framework make forward estimates unreliable,” the project said in its written presentation. It said the “aggressive” fiscal consolidation path of the MTBPS appeared to stabilise debt but the spending trajectory was implausible and the spending ceiling was unreliable to provide forward guidance.

“The spending ceilings tabled in successive MTBPS documents are no longer a good guide to subsequent budgets. Large unallocated reserves obscure the government’s true policy intentions. The frequent resort to “special appropriations” weakens the authority of the main appropriation (that is the annual budget).”

Claims that fiscal consolidation will “end” after 2023’ cuts are not borne out by spending estimates, the project said.

Revenue projections in the MTBPS also seemed on the optimistic side, which if not realised would alter the fiscal framework over the medium term, Amra said.

Using slightly different “more plausible” assumptions on expenditure and revenue, the Public Economy Project concluded that the fiscal targets of the MTBPS would not be achieved. On this basis a very slight primary balance — lower than the 0.7% projected by the MTBPS — would be realised in 2023/2024 and significantly lower at 0.5% than the MTBPS’s projection of 1.5% for 2025/2026. Debt to GDP would be worse and there would be no debt stabilisation over the medium term.

The project forecasts debt to GDP of 74.5% in 2023/2024 compared with the 70.8% of the MTBPS.

Amra noted that there had been an overall deterioration of budget policymaking.

The Institute for Economic Justice and the Budget Justice Coalition called for the introduction of a wealth tax.

The Treasury will respond to the issues raised during the public hearings on Friday.

ensorl@businesslive.co.za