The public purse is in ICU … but that’s no surprise

The Medium-Term Budget Policy Statement (MTBPS) is a sober acknowledgement that South Africa’s public finances are in intensive care.

The fiscal position has deteriorated since last year, with the budget deficit and total debt-to-GDP ratios rising to unaffordable levels. Unfortunately, this is not a surprise.

As in his previous February budgets and MTBPS announcements, Finance Minister Enoch Godongwana believes it will start to improve from the “next” financial year (in this case, 2025/26). Still, the proof will be in the pudding.

However, there are two standout numbers in this year’s mini budget: one positive and the other negative. There is also a silver lining on the horizon.

The positive standout is that the primary budget surplus achieved in the previous financial year will increase over the next few years. A primary budget surplus is when total revenue exceeds expenses but excludes interest payments on debt. The surplus will be around R33 billion in the current financial year and amount to a substantial R360 billion over the following three years.

Unfortunately, it highlights how significant the current R5.5 trillion debt the government must service is as it results in a total budget deficit of 5%, or R373 billion, in the current financial year alone.

The negative standout is that the South African Revenue Service (Sars) will not meet its tax collection targets. The MTBPS reveals that Sars will collect R31 billion less over the next two years, which will add to the government’s dependence on debt to pay the bills. This is a significant problem and may lead to higher taxes next year.

The MTBPS also reveals that Godongwana is very aware that the only solution to improve the health of the public purse is to accelerate economic growth.

Despite promises of implementing “structural reforms” to accelerate growth over the past decade, it never became a reality. South Africa’s growth rate has been pedestrian at best, and even the National Treasury’s forecasts suggest more of the same over the next three years, with it set to rise from the current 1% to 1.9% in 2027. The National Treasury is always overly optimistic, so it does not sketch a good scenario.

In this context, Godongwana reaffirmed the government’s commitment to four “pillars” to accelerate growth. These are: to maintain macroeconomic stability, implement structural reforms, support growth-enhancing infrastructure and build state capability.

The most important is improving service delivery through “building state capability”.

The most significant inhibitor of growth is poor service delivery. It starts with abysmal crime prosecution rates and an evident inability to reign in the various mafia’s actively destructing economic growth. If the government can reduce crime significantly, it will have a significant snowball effect on economic growth.

Godongwana has also used each budget announcement to advocate the government’s focus on infrastructure. This mini budget was no different. However, a good start would be to increase the maintenance of existing infrastructure (very little was mentioned in this regard in this MTBPS).

Essential maintenance of water and electricity, infrastructure, roads, and bridges is totally inadequate in many (most?) communities, and the infrastructure is at breaking point. It should probably be a bigger priority than building new infrastructure.

This brings me to the silver lining: the possible increase in economic activity flowing from increased confidence in our political future. In the short life of the government of national unity, a lot has been achieved. Hopefully, the political parties can look past their differences and continue to nurture the increase in confidence.

This will probably have the most positive impact on improving the state’s finances.

Moneyweb has produced another excellent editorial offering which dissects the MTBPS.

Happy reading.

Regards, Ryk van Niekerk Editor, Moneyweb