Executive summary of 2019 National Budget Speech

CAPE TOWN — Finance minister Tito Mboweni summed up the contrasting situation Treasury faces by referencing a predecessor who one year distributed plums to parliamentarians in celebration of the good times. The 2019 equivalent is aloe ferox – the spiky, bitter plant whose best attribute is its resilience. To emphasise the biblical theme of a lean year, Mboweni drew three times from the Old Testament, further illustrating the change since his October mini budget by switching to a different Dickens novel this year – from Tale of Two Cities to Oliver Twist; from “best and worst of times” to a dominant theme a State Owned Enterprise refrain of “Please sir, may I have some more…” Here’s the executive summary. – Alec Hogg

By Alec Hogg

  • Eskom will receive an annual grant of R23bn from taxpayers over the next three years as it restructures into three independent units. The R69bn cost will require a R16bn rise in government’s self-imposed spending ceiling.
  • In the past year Eskom drew down a further R50bn of its government guaranteed overdraft of R350bn, taking the total utilisation of the facility to just over R290bn.
  • The R23bn a year for Eskom will primarily be funded by higher income tax revenue and projected savings generated by the early retirement of an expected 30 000 public servants.
  • As a result of these funding needs, there will be fractional relief from fiscal drag, with the only adjustment being a slight rise in the level at which South Africans start to pay tax. The country’s progressive income tax rates means inflation and salary increases will automatically generate R12.8bn extra for the fiscus in the year ahead.
  • The government’s offer of early retirement without pension penalties is unprecedented. It will cost R16bn but is expected to reduce the public sector wage bill by R20bn over the next three years.
  • Treasury is projecting that around a quarter of the 127 710 public servants aged between 55 and 59 will opt for the package which guarantees retirement benefits as though they only left at 60.
  • Additional cost savings of around R23bn are being projected over the next three years, taking the total estimated saving on the state’s salary bill, inclusive of the retirement packages, to R50bn.
  • The 2019 Budget is built on six “fundamental prescripts” –
  1. Achieving a higher rate of economic growth
  2. Increasing tax collection
  3. Reasonable, affordable expenditure
  4. Stabilising and reducing debt
  5. Reconfiguring state-owned enterprises
  6. Managing the public sector wage bill
  • Tax revenue has been revised downwards by R15.4bn from October’s mini budget, primarily due to higher VAT refunds.
  • SARS is being fixed: A new Commissioner will be appointed “in weeks”; an Illicit Economy Unit was launched in August to attack the illicit cigarette trade; the Large Business Unit will be relaunched in April; the IT systems have been strengthened; information sharing agreements have been established with allies to fight cross-border tax evasion.
  • Fuel levies will increase by 29c a litre for petrol and 30c a litre for diesel. This is the first time in recent memory that the adjustment has been below inflation, It will raise R1.3bn.
  • An export tax will be introduced on scrap metal.
  • Since the mini budget, steps have been taken to reduce State spending by R50bn over the next three years. Half of this saving will come from the early retirement proposal and natural attrition of public sector staff. Against this spending will increase by R75bn primarily through the injection into Eskom (R69bn) with smaller additional allocations to the Infrastructure Fund (R5bn) and the 2021 Census (R1.3bn).
  • Government is setting aside R23bn a year to support Eskom during its reconfiguration into three independent components. Eskom used an additional R50bn of its R350bn government debt guarantee in the current financial year. A Chief Reorganisation Officer for Eskom will be jointly appointed by the ministers of Finance and Public Enterprises.
  • Since the mini budget, steps have been taken to reduce State spending by R50bn over the next three years. Half of this saving will come from the early retirement proposal and natural attrition of public sector staff. Against this spending will increase by R75bn primarily through the injection into Eskom (R69bn) with smaller additional allocations to the Infrastructure Fund (R5bn) and the 2021 Census (R1.3bn).
  • A reserve of R13bn has been set aside to provide support for SAA, the SABC, Denel and other SOEs in the year ahead. In the current year SAA’s government guaranteed debt increased by R6.2bn and Denel was granted a further R1bn guarantee. The Land Bank was the outlier, actually repaying debt.
  • In the coming year expenditure is expected to be R1.58 trillion and spending R1.83 trillion, leaving a budget deficit of R243bn which needs to be borrowed.
  • Interest costs now account for R209.4bn a year, the fifth biggest allocation after Education (R386bn), Social Grants (R278bn); Health (R222bn); and Community Development (R208bn).
  • The critical Debt to GDP ratio is projected to rise to 56.2% in the year ahead, but it expected to stabilise at 60% in 2023/24.
  • As part of the strategy of switching state spending from consumption to investment, wage costs are planned to be reduced by R27bn over the next three years, mainly through allowing public servants to take early retirement. This will be complemented by the introduction of limits on overtime, bonuses and pay progression.
  • Staffing of diplomatic missions is unjustified and will be reviewed urgently.
  • There will be no salary increases this year for members of Parliament and provincial legislatures and executives at public enterprises.
  • Of R5.87 trillion in total state spending during the next three years, the biggest allocations are for education (20%); social development (15%) and health (10%).
  • Over R30bn is being allocated to build new schools and maintain schooling infrastructure. An additional R2.8bn will be used to replace pit latrines in 2 400 schools. More than R111bn is being invested over the medium term to fund the university and technical college education of 2.8m students from poor and working class backgrounds.
  • Officials from the National Treasury and the Department of Arts and Culture will consider proposals for the development of a new national theatre, a new national museum, and also consider financial support for the National Archives, a national orchestra and ballet troupe.
  • In the coming fiscal year, R567bn has been allocated for social grant payments. Old age pensions will rise by R80 a month; monthly grants for foster care will rise R40 and child support by R10.
  • More doctors and nurses are needed with R2.8bn reprioritised to a new human resources grant; an additional R1bn is being allocated to interns; and R1bn will be used to raise the monthly pay for community health workers to R3,500.
  • Reducing data costs is a priority. Mboweni will be working “relentlessly” with communications minister Stella Ndabeni-Abrahams to ensure the rapid licensing of spectrum and resourcing ICASA to ensure the mandate is actioned.
  • Industrial business incentives worth R19.8bn have been allocated. An initial amount of R600m for the clothing and textiles competitiveness programme will grow to R1.1bn in three years, to support 35 500 existing jobs and create 25,000 new ones.
  • The small business incubation programme will be supported through an allocation of R481m to the Small Enterprise Development Agency.
  • 8bn is allocated to implement 262 priority land reform projects over the next three years, with R3.7bn set aside for emerging farmers seeking to acquire land to farm. The Land Bank has set aside R3bn to support small farmers and to leverage partnerships with financial institutions.
  • A subsidised help-to-buy pilot is being launched for first time buyers with an allocation of R950m over three years. Funding of R14.7bn has been reprioritised into conditional grants for informal settlement upgrading to ensure the provision of basic amenities.
  • SANRAL is being allocated an additional R3.5bn over the next three years to improve non-toll roads.
  • Treasury is working with the Department of Justice to support the establishment of a new Investigating Directorate in the National Prosecuting Authority.
  • The Infrastructure Fund will accelerate R526bn worth of on-budget projects by bringing in the private sector and development finance institutions. In several instances the private sector will design, build and operate key infrastructure assets. In addition, government will commit R100bn over the next decade.