2020 National Budget speech by Tito Mboweni
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Finance Minister Tito Mboweni started his budget speech with his usual aloe reference: “The Aloe Ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it.” Here’s the executive summary of this plus hour long discussion.
- Finance Minister Tito Mboweni’s stated message for Budget 2020is Consolidation, Reform and Growth.
- In the fiscal year to end February 2021, the State’s revenue is projected to grow by 4.9% to R1.58trn (29.2% of GDP) with expenditure at R1.95trn (36%). This means a consolidated budget deficit of R370.5bn, or 6.8% of GDP. Gross national debt is projected to be R3.56trn, or 65.6% of GDP by the end of 2020/21.
- State spending exceeded the Budgeted figure by R17bn. In the years ahead government spending is expected to grow at average annual rates of 5.1% mainly due to rising debt servicing costs. Treasury is budgeting for non interest spending to fall in real terms.
- Eskom remains the top priority with a stable electricity supplycited by Mboweni as “our number one task.” Over the past 12 years Government has allocated R162bn in bailouts to State Owned Enterprises, 82% of which (R133bn) went to Eskom. Over the next three years the State will transfer a further R112bn to Eskom compared with the anticipated R69bn previously budgeted. The State has committed to inject R23bn annually into Eskom for the following seven years.
- As a result of higher than budgeted spending and lower than anticipated revenues, a number of South Africa’s key financial ratios have blown out to record or near record levels. This stems from a collapse in GDP to just 0.3% growth in 2019 compared with the 1.5% projection in the National Budget a year ago. Treasury’s projected income and expenditure numbers are based on GDP growth projections of 0.9% this year, 1.3% in 2021 and 1.6% in 2022.
- Mboweni expects the economy to receive a “number of jump starts” over the next 18 months, listing fruits of President Cyril Ramaphosa’s “reform agenda”; lower inflation; the interest rate reduction earlier this year; recent gains in prices of platinum group metals; the impending change to the electricity regulatory framework; and The tax proposals we are setting out today. On the other hand, problems with electricity supply with retard growth which is thus expected to average just over 1% during the next three years.
- Primarily due to lower economic growth, revenue for the State’s 2019/20 financial year is expected to come in R63.3bn below what had been expected a year ago. This is R10bn worse than had been projected less than four months ago in the MTBPS. Personal Income Tax accounted for R25bn of the shortfall; VAT for R16bn; and Corporate Income Tax for R13bn.
- The Budget Deficit for the past fiscal year soared from an expected 4.5% to 6.3% of GDP. The deficit is projected to rise further to a near record of 6.8% in the year ahead, the fourth successive increase after 2017’s 3.3%. This year’s deficit is the second highest on record, topped only by 7.1% in the pre-democracy-inflated year of 1993. The 2019 Budget Deficit was 4.2%.
- Projected growth of 4.9% in tax revenue and continued spending increases means the public sector borrowing requirement continues to expand. After R280bn (5.7% of GDP) in 2019, it hit R333bn (6.2%) in the fiscal year to end February 2020. With lower revenue and higher spending, the State’s borrowing requirement is now projected to rise to R410bn (7.9%) in the year ahead and R454bn (8.4%) in 2022