AS IT HAPPENED | Medium-term budget: Govt scrambles for savings as debt surges

The EFF has slammed the budget statement as “irrational, reckless and underwhelming”.

The party says has criticised proposed cuts of conditions grants to municipalities. It added that the finance minister does not have a “believable and practical” plan to stabilise government debt.

Godongwana’s statement read like a “private sector manifesto crafted in Sandton by a group of CEOs,” it said.  

Mmusi Maimane-lead political party Build One South Africa has described the budget statement as “massively disappoint[ing]”

“Instead of cutting the cost of living for struggling households - or cutting corruption, size of government and wasteful spending – the ANC went for ruthless cuts to basic services amounting to over R13 billion.”

“Government is fast running out of money and continues to collapse. South Africans are now being made to pay for the sins for the ANC in government.”

ActionSA, meanwhile, says the government has “run out of ideas to grow the economy and create jobs”. 

First Reactions 

ANC alliance partner Cosatu has slammed the budget statement as an "underwhelming accounting note". 

"Instead of tabling a bold MTBPS that would turn a tepid economy around, provide relief to the poor and rebuild the state; it chose to deliver an underwhelming accounting note with reckless cuts to budget allocations and below inflation increases to Departments pencilled in over the next three years," it said. 

The DA, meanwhile, says Godongwana's address shows that the government "simply does not care about the plight of battling South African households who are unable to put enough food on their tables". 

"There was no mention of the so-called food security plan of action to protect consumers from the burden of skyrocketing food prices.

"The Minister could very easily have expanded the zero-VAT rated basket of food to bring immediate relief to South African households. He could also have reduced the taxes and levies on fuel which would have provided further relief," the party said. 

Here is what you need to know about SA's spiraling debt problems. 

The address has ended and reaction has started to trickle in. 

First up is the SA Revenue Service which says that, despite lower than expected tax income, it managed to release more refund payments than last year.

"The good news story is that SARS released R212.2 billion refund payments back to the economy during the first six months of the current fiscal year. These payments are higher than the prior year by R24.6 billion (13.1%) and also higher than the Budget 2023 estimate by R30.1 billion." 

The minister again name-checks the victorious Springboks. 

"Drawing inspiration from the Springboks, I am convinced that if we are united and remain committed to this trajectory that will lift up our growth prospects," he says. 

He has now moved on to thanking all and sundry.

Godongwana says the state is devising ways to make better and more targeted use of the Criminal Asset Recovery Account to address crime. 

He noted that South African Police Service, The Defense Force, the Financial Intelligence Centre, the Department of Home Affairs and the Border Management Authority have all received allocations from this fund.

A recommendation has been made for Cabinet to consider using money from the fund to combat illegal mining. 

There is a "significant amount of work that must still be done" for SA to get off the Financial Action Task Force's (FATF) grey list, says the minister. 

SA was added to the FATF's grey list in February, putting the country in the company of Syria, Haiti and Yemen.

"Government expects to address all the deficiencies identified by FATF by early 2025," says the minister. 

The minister is knocking Transnet. But it appears that there is no immediate bailout in the works. 

"Transnet’s performance ... has been underwhelming and its operations have been strained by a worsening financial state."

Godongwana first wants Transnet to improve before it gets "financial support". 

Godongwana is now speaking about ongoing problems at Transnet. 

"South Africa’s logistics system faces significant challenges, such as deteriorating rail performance and inefficient ports. Rail under performance is estimated to have cost up to 5 per cent of GDP in 2022, with losses in the region of R50 billion in the minerals sector alone." 

Speaking of electricity, Godongwana says SA has experienced more power cuts in the year to September 2023 than in the whole of 2022.

There is room for hope, he says. 

"Over the medium term, additional generation capacity from renewable energy investments combined with the return of Eskom’s units that are out of service, should curtail power cuts."

Debt relief to municipalities 

The minister is now speaking about municipal debt. 

"On application by municipality, the debt to Eskom up to 31 March 2023 will be written off over a three-year period, in equal annual tranches. This is provided the municipality complies with set conditions." 

These conditions include enforcing strict credit controls, enhanced revenue collection,up-to-date payment of Eskom monthly current account.

"By October 2023, 67 applications had been submitted, totalling R56.8 billion or 97 percent of total municipal debt owed to Eskom at end-March 2023." 

Godongwana now turns to water provision and the state of the country's wastewater systems.

He says the state will change how money is sent to municipalities, depending on the assessments of their water systems. 

The government is also looking into new funding models for how municipalities earn funds from providing electricity. 

The model will seek to ensure that municipalities can continue to "earn revenue through the transition to more self generation of electricity by firms and households". 

While spending is set to fall, the Covid-19 grant is not being cut. 

"R34 billion is allocated to extend the Covid-19 Social Relief of Distress grant by another year. Over the medium term, a provisional allocation is retained while a comprehensive review of the entire social grant system is finalised."

Godongwana says that government services that are being "crowded out" by debt service costs. 

As a result, spending has to fall. 

"In the current financial year, spending has been revised down by R21 billion. Further reductions of R64 billion in 2024/25 and R69 billion in 2025/26 are proposed."

Godongwana says that, due to rising debt levels, spending reductions and "reprioritisations" are needed. 

"None of these decisions are taken lightly. They are taken with the short- and long-term viability of public finances in mind, and in the interests of balanced and inclusive growth."

Scarce resources needed to be used better, he adds.  

The minister says the government will have borrow an average of R553 billion per year over the medium term. 

"As a result, gross debt rises from R4.8 trillion in 2023/24 to R5.2 trillion in the next financial year. By 2025/26, it will exceed the R6 trillion mark."

Debt interest costs are now in the region of R385 billion.  

Godongwana says tax collection must improve. 

"Every additional Rand of revenue collected is one Rand less which we?have?to?borrow."

The minister says that, while tourism, agriculture and some other sectors are doing well, the budget deficit has grown by R54.7 billion.

The reason? A fall in corporate income tax, higher borrowing rates and wage bill increases. 

"We forecast a 0.8 per cent growth in real GDP in 2023," says Godongwana. 

Growth is projected to average just 1.4 per cent from 2024 to 2026.

"These growth rates are not sufficient to achieve our desired levels of development."

The minister says SA's economic outlook looks weak. 

"The global economic environment is less supportive of South Africa’s growth prospects."

Renée Bonorchis writes in her preview that South Africa is both spending more than it was last year and taking in less in taxes.

Godongwana will have to juggle cutting expenditure while at the same time finding more money. 

Finance Minister Enoch Godongwana will table the 2023 Medium-Term Budget Policy Statement in Parliament on Wednesday afternoon.

The statement sets out the state's spending plans for the next three years, gives an update on tax revenue collections, and gives Treasury a chance to tell South Africans what it expects from the economy.  

Unlike the main Budget in February, the statement (don't let the finance minister hear you calling it a mini budget) does not generally include announcements on things like new taxes. But the minister can set the scene for what he intends to announce early next year.

And times are tough. As News24's Carol Paton wrote over the weekend, Godongwana has indicated he will "bump up borrowing" to soften the blow of budget cuts.