Medium-term budget: What it means for your money
Finance minister Enoch Godongwana has delivered his maiden budget speech, holding a tight grip on spending and generally sticking to the plans laid out by his predecessor, Tito Mboweni.
While the market has reacted favourably to this stance – where the government aims to keep expenditure under control and bring debt levels to acceptable levels – the Medium-Term Budget Policy Statement (MTBPS) was also full of misses.
Notably, the finance minister did not bring any certainty to major policies that have clouded investor sentiment over the past year – such as the basic income grant, Gauteng’s e-tolling issue, and national health insurance.
Some quarters also criticised the speech for being scant on details on how South Africa will navigate the post-pandemic recovery.
Below, finance experts from across the field review Godongwana’s medium-term budget and what it means for consumers.
No mention of tax increases
According to Matrix Fund Manager, Godongwana’s speech saw a minimal reaction from the equity market. Good news had been expected from the MTBPS and the market signalled its satisfaction that there were no negative surprises, such as alluding to tax rate increases.
As far as the rand was concerned, the currency had rallied sharply ahead of the speech, so headed into the release at a strong level and saw a muted reaction to the MTBPS itself.
Matrix said that the minister made it clear that he would continue the policy stance of his predecessor, and committed to fiscal consolidation.
“Although the MTBPS is not the forum for major policy changes and it is too early to state convincingly that ideology is playing a smaller role, Godongwana maintained the Treasury’s message that government must maintain accelerated reforms to boost growth so that the economy can create jobs. This will reduce the reliance on the state and ease pressure on the fiscus,” it said.
For consumers and businesses, there were also no indications of tax rate increases.
“Rather, reliance is on improving SARS and ability to bring in revenues. At the same time, there is an effective wage freeze for the next two years, albeit off the higher current level, so there is still the pursuit of consolidation via the wage bill.”
Basic income grant – kicking the can
Finance group BNP Paribas said that the MTBPS was “prudent and a politically astute masterstroke by the new finance minister”.
“We think the Treasury’s revenue estimates look conservative but with upside potential, possibly giving it the green light to extend the social relief grants next year.
“Although long-term debt sustainability remains an issue, we expect markets to view this budget as a step in the right direction. The February 2022 budget will be the next major test to our still constructive outlook.”
The group said that the MTBPS is seldom the forum for big sweeping policy announcements, and it was no different this year, with critical policy elements around social grants expenditure avoided and deferred to the February 2022 national budget.
“Encouragingly, the finance minister made no mention of the widely debated ‘Basic Income Grant’ that many left-leaning members of the ANC and its alliance partners had demanded to be addressed in the budget update.
“Instead, Godongwana continued to make mention of the fact that the current social relief of distress grant – which was extended in July to 31 March 2022 – remains ‘temporary’ for now and that a decision on whether or not it would be extended further would rest on whether government revenue outperformance continued.”
Backs against the wall
Civil action group Outa said that the budget was largely the same as in February, and there was little in the way of shocks or big shifts. It said the budget was indicative of Treasury having its back to the wall – with wording pointing to hopes and dreams rather than the actual implementation of reforms.
For consumers, nothing was said about e-tolls directly, and those reliant on the social distress grant will have to wait a few more months to find out if their Covid-19 support structures will dry up.
“Once again, the future of e-tolls is dodged, although the MTBPS is the main budget policy document; (however) it quietly acknowledges that e-tolls are a failure by shifting R3.7 billion with the Transport vote from non-toll roads to the Gauteng Freeway Improvement Project.
“Treasury has been funding the e-toll shortfalls for seven years now but the gantries continue to charge motorists in this failed user-pays scheme,” the group said.
The poor – currently about half the working-age population and their dependents – face an anxious wait for February to hear whether the R350 Social Relief of Distress Grant will last a little longer or be replaced by something more long-term, Outa said.
“But in the face of such crisis, there seems little hope for them. Years of misspending has resulted in debt-servicing costs that continue to crowd out essential services.”
Budget does little for consumers
Chief Economist of the Efficient Group, Dawie Roodt said that Godongwana set the right tone with a more conservative approach to the budget.
“The minister made it clear that he wants to stay within the fiscal framework. That means he would need to consolidate state finances over the next couple of years, and inevitably cut back on state spending in real terms relative to the size of the economy,” he said.
Roodt added that the windfall of an estimated R120 billion extra in tax revenues could actually be more.
However, despite the brighter outlook, the budget does little to assuage consumers who have been hard-hit by rising fuel prices and the growing power crisis. Apart from hitting travelling consumers where it will hurt most during the upcoming December holiday period, the continued rise in the cost of petrol will also lead to an increase in food prices and consumer goods.
Boost for homeowners
Godongwana’s MTBPS is expected to boost market confidence, said Dr Andrew Golding, chief executive of the Pam Golding Property group.
In addition to reassuring the markets that the government remains committed to fiscal restraint, the finance minister provided a strong focus on the critical need to push ahead with the long-promised structural and economic reforms necessary to unlock the growth of our economy – including bringing additional electricity capacity into the grid and fixing Eskom, he said.
“It is hoped that the MTBPS will restore and build confidence in the markets – despite the current challenges faced by consumers, such as load shedding and ongoing fuel price hikes – with a positive knock-on effect for the housing market.
“South Africa’s residential property market continues to demonstrate its resilience, with sales activity rebounding post-hard lockdown in terms of volumes or units sold back to similar levels as experienced during the previous five years, and with heightened sales values during the first half of 2021.
“Our outlook remains optimistic, as aspirant home buyers and existing homeowners across all demographics and sectors of the market demonstrate a sustained appetite for property acquisitions,” said Golding.
Bye-bye NHI – for now
Tertius Troost, Tax Manager at Mazars said that, despite revenue collections being revised upwards by R120 billion, “spending still outstrips tax revenue collections by a significant amount”.
“Even though Treasury has once again reiterated the fact that it is trying to bring expenditure down, it doesn’t seem like they are able to curb spending by enough to make a real impact in the short term,” he said.
Troost said that the ongoing power disruptions and unrests of earlier in the year have made a very clear impact on the National Budget.
“Treasury had to assist with some of the Sasria payments and load shedding is still costing the economy billions. In spite of that, I believe that the country is already in a better position than it was in February of this year,” he said.
Mazars said that it also appears that National Health Insurance will not be implemented in the near term, given the minister’s comment that there is insufficient capacity in the health sector to work substantively on national health insurance.
“With all of that said, perhaps some of the best news for South Africans is the fact that no proposed tax changes were announced this time around. At the very least, this might allow the country to continue recovering without having to adapt to any additional surprises in their tax bills.”
A boost in confidence – but delivery remains key
Business Leadership South Africa chief executive Busi Mavuso said the budget speech was handled well in difficult circumstances and should provide a boost for business sentiment – despite the challenges that lie ahead.
“Overall, I think the minister has done a good job in really difficult circumstances,” she said. “I believe that if (Godongwana) and Operation Vulindlela renew their efforts to accelerate other key reforms, it will restore much confidence among businesses and investors, locally and internationally.”
“We are on the right economic trajectory – one that grows at a rate fast enough to absorb jobs and increase our per capita income levels. Delivery remains critical.”
Mavuso warned, however, that confidence levels have been battered by past failures to successfully implement reforms and it’s critical therefore to ensure all measures that are approved are indeed successfully implemented.
“Rating agencies and international investors will be keeping a close eye on that,” she said.
Mavuso said that one area she was disappointed with was the lack of progress on reform for the financial sector and exchange control, particularly with moves to position South Africa as a financial hub for the continent.
“I hope these will be finalised in the February budget because they will go a long way to attracting international investment and to growing our economy,” she said.
The wage bill is still an issue
Momentum Investments said that Treasury’s medium-term economic forecasts appear realistic; however, its plans to keep spending contained are likely to be tested.
This is most likely to be felt in the government wage bill, it said. Godongwana budgeted an extra R20.5 billion to be spent on a 1.5% increase in the public sector bill – but Treasury still has a lingering court battle over the last leg of its 2018 wage agreement which could undo much of its budget-cutting.
Should the courts side with workers in this battle, the government will have to find an additional R80 billion to R85 billion – either by raising more revenue through taxes, taking on more debt, or by cutting jobs.
On the load shedding front, Momentum Investments said that despite the government lifting of the self-generation cap and the Bid Window 5 on renewables alleviating pressure on the grid, load shedding will persist in the near term due to legal battles ensuing over additional short-term electricity supply.
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