The budget deficit for the 2018/19 financial year is expected to widen to 4.3% of the Gross Domestic Product (GDP) – higher than the 2018 Budget estimate of 3.8% and mainly as a result of tax revenue shortfalls.
The National Treasury forecasts that GDP growth will slow to 0.7% in 2018, down from 1.3% last year, before rising to 1.7% in 2019 and 2.1% in 2020,” said Treasury as Finance Minister Tito Mboweni tabled his maiden Medium Term Budget Policy Statement (MTBPS) in Parliament.
Treasury said that the country’s economic outlook is weaker than projected in the February 2018 Budget, which forecast 1.5% and 1.8% Gross Domestic Product (GDP) growth in 2018 and 2019, respectively.
“These revisions reflect lower production by agriculture and mining in the first half of the year, as well as a lack of new investment,” said the MTBPS statement while also adding that agriculture and mining are expected to return to moderate growth in the next year.
In A Tale of Two Cities, Charles Dickens opens with:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity… we were all going direct to Heaven, we were all going direct the other way…”
So too is the present time. As a country, we stand at a crossroads. We can choose a path of hope; or a path of despair. We can go directly to Heaven, or as Dickens so politely puts it, we can go the other way.
For ordinary South Africans, it has become a difficult time. Administered prices, such as electricity and fuel, have risen. Unemployment is unacceptably high. Poor services and corruption have hit the poor the hardest.
Under the leadership of our President, and much like the central character in A Tale of Two Cities, we have, as a country, chosen the difficult path of redemption. The Medium-Term Budget Policy Statement is a central part of our planning as a country. It is designed to outline how we spend scarce resources for the benefit of all South Africans.
This Policy Statement provides us with an opportunity to take stock of the strides we have taken in the year. We do this in a data driven way, providing credible evidence to judge our collective performance as a society.
However, it is more than a set of numbers, reams of data, charts, graphs or words. Our performance should be measured by whether people are gainfully employed, whether our children are learning in decent schools, and whether we have health care facilities that are up to standard.
The Medium-Term Budget Policy Statement is an opportunity to restore trust between government and society. South Africans correctly expect more from their government. They are right to expect that their money is spent wisely and productively, and goes to meeting their basic needs.
… Government remains committed to its goal of stabilising and bringing down the debt to-GDP ratio. In recent months, deteriorating economic performance, revenue 13 shortfalls and a weaker rand have all contributed to higher debt projections. The consolidated budget deficit is estimated at 4 per cent in 2018/19, compared with the 2018 Budget projection of 3.6 per cent of GDP. After rising to 4.2 per cent, the deficit stabilises at 4 per cent in the outer years. Gross debt is on pace to stabilise at 59.6 per cent of GDP in 2023/24.
Other risks identified in the February 2018 Budget have materialised, including a public-service wage agreement significantly above inflation, and the continued decline in the financial condition of some state-owned companies, leading to requests for budget support.
In recent budgets, we took important steps by reducing the expenditure ceiling and increasing taxes. Given the weakness of the economy, government is aiming to manage these pressures, while avoiding additional fiscal measures that could limit growth.
The 2018 public-service wage agreement exceeds budgeted baselines by about R30.2 billion over the medium term. We have not allocated additional money for this. National and provincial departments will be expected to absorb these costs within their compensation baselines. The Department of Public Service and Administration will work with national and provincial departments to help them manage the implementation of the agreement, while protecting our key developmental priorities.
The wage bill remains the biggest cost pressure on the budget. Over time, wages have crowded out other goods and services and capital investment, particularly in health, education and defence. In some cases, this has contributed to a build-up of unpaid invoices in provincial departments.
Around 85 per cent of the increase in the wage bill is due to higher wages, rather than headcount increases. The national wage ceilings remain unchanged, despite the new wage agreement.
To support a sustainable reconfiguration of our airline portfolio, in 2018/19 government will provide additional funding for SAA and South African Express Airways. Minister Gordhan and I are working closely to limit the fiscal cost of these measures. By the 16 end of the year, the boards of these two companies will present plans to strengthen and align their operations.
… We are at the crossroads, we can either choose to go left or to go right or to go straight on the path to nowhere.
We are choosing the road of prosperity and opportunity, where 18 the true spirit of South Africa lies.
I urge South Africans to journey with us on this path. A path destined to take us out of poverty and deprivation. It is a call to all of us: public servants, business, civil society, communities and labour.
This is what our people deserve.
I thank you.