Pravin Gordhan’s #MTBPS2016 in a nutshell

By Donwald Pressly

• Universities and students will receive an additional R17 billion over the medium term. Post school education and training budgets are the fastest growing, with university subsidies increasing by 10.9 percent each year on average and NSFAS allocations growing by 18.5 percent.
• Government will fund – in the February 2017 Budget – the increase in fees at higher learning institutions for the 2017 academic year up to a maximum of eight percent, for students from households earning up to R600 000 a year.
• The MTBPS proposes a “measured fiscal consolidation”, reducing the expenditure ceiling by R10 billion next year and adding R13 billion in revenue measures. Combined with the proposals announced in the 2016 February Budget, this brings the total tax increase next year to R28 billion.
• Government will prioritise infrastructure investment ‘to ease bottlenecks” with the intention of raising the economy’s potential growth rate. Public-sector infrastructure budgets “are estimated at R987.4 billion over the next three years – roughly R320 billion on average
• Gross tax revenue is projected to fall short of the 2016 Budget projections by R23 billion in the current year, R36 billion in 2017/18 and R52 billion in 2018/19. Treasury has attributed this to a sharp decline in year-on-year revenue growth in 2016/17 and “downward revisions” to economic growth and the tax bases. In particular the latest forecast shows “significant reductions in major tax bases – including wages, household consumption and imports.
• Changes to the management of government’s foreign currency investments will generate revenue that reduces the budget balance by R36 billion over the medium term.
• Domestic GDP growth for 2016, forecast at 0.9 percent at the time of the February Budget, has been revised down to 0.5 percent. Growth is expected to increase to 2.2 percent by 2019, supported by more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence, stabilising commodity prices and stronger global growth.
• The MTBPS proposes R26 billion in reductions to the expenditure ceiling over the next two years. Proposed tax measures amount to R13 billion in 2017/18. Combined with higher taxes signalled in the 2016 February Budget total revenue increases amount to R43 billion over the next two years.
• These adjustments result in net national debt stabilising at 47.9 percent of GDP in 2019/20. National Treasury reported today that its fiscal policy proposals “are expected to stabilise the net loan debt – the difference between gross debt and government’s cash balances – at 47.9 percent of GDP but the February Review projected that the net debt would stabilise in 2017/18 at 46.2 percent.
• The upward revision of the debt-to-GDP ratio reflects lower nominal GDP, higher borrowing and currency depreciation.
• Government debt now exceeds R2 trillion. The MTBPS reports that these rising debt-service costs are “crowding out expenditure on priorities like infrastructure and education”.
• Debt service costs are set to rise by 10.1 percent over the medium term, with post school education and training rising the next fastest at 9.2%.
• Defence, public order and safety spending growth, at 5.8% is below the inflation target band, as is economic affairs at 4.9%, agriculture, rural development and land reform at 4.8 percent and general public services at just 4.1 percent.
• Domestic GDP growth for 2016, forecast at 0.9 percent at the time of the 2016 Budget has been revised down to 0.5 percent. Growth is expected to increase to 2.2 percent by 2019, supported by “more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence”.
• The 2016 MTBPS proposes to raise an additional R13 billion in 2017/18. This adds to the tax increase of R15 billion in 2017/18 announced in the 2016 Budget. In total the fiscal framework includes additional revenue measures to raise R28 billion in 2017/18 and R15 billion in 2018/19
• Gross tax revenue collections for 2015/16 amounted to R1.07 trillion, higher by R0.3 billion than the 2016 Budget estimate. Value-added tax recorded an over-collection of R3.1 billion in 2015/16, mainly as a result of lower-than-anticipated VAT refunds. Personal income tax (PIT) was the worst performing category, with an under-collection of R3.9 billion, led by lower-than-expected pay-as-you earn (PAYE) receipts.
• The revised total tax and consolidated budget revenue for 2016/17 is projected to be R1 301 billion (compared to R1 324 in February or down by R23.3 billion). The estimate for 2017/18 is R1 416 billion.
• Highlights of the adjusted estimates of national expenditure include a further R3 billion in projected underspending over and above a R1.3 billion in declared underspending by departments.
• Other adjustment estimates include R1.1 billion in self-financing expenditure by various departments, R212 million to procure fodder for animal feed for drought-stricken areas. R950 million for the department of international relations and cooperation to compensate for the difference in forecast foreign-currency exchange rates and actual rates oat time of payment and R290.7 million for a packaged mobile desalination plant to be used in coastal areas and R50.6 million for water tinkering and storage for drought-stricken areas.
• There is a R212 million addition to comprehensive agriculture support programme grant to provide drought relief to farmers.
• Owing to the soaring cost of food, the national school nutrition programme grant will receive an additional R120 million, R130 million and R140 million over the next three years. This grant is aimed at providing pupils in quintile 1 to 3 schools a daily “nutritious meal”.
• Government guarantees to state-owned companies is now R469.9 billion, but just R263 billion has been used by the end of 2015/16 because entities had not fully used their available guarantee facilities. Eskom enjoys the largest guarantee of R170 billion.