Dec 07

The Annual Medium-Term Budget Policy Speech

Dear valued clients,

The annual Medium-Term Budget Policy Speech serves to adjust the main budget delivered in
February each year. This is sensible and allows the government, and we the public, to take stock of the country’s income and expenditure and to adjust both, in order to meet changing or unforeseen circumstances.

But the MTBPS delivered by Finance Minister, Enoch Godongwana, on 1 November was of a different order in a number of key respects. Firstly, it was a week late as a result of the need to significantly revise the forecast numbers and because of organisational and management inefficiencies within Treasury itself. This does not instil confidence.

Secondly, the numbers produced in the February budget were missed so widely as to necessitate what was, in fact, an entirely new budget, rather than a revision.

Thirdly, it was politically imperative for the government to get as much of the bad news into the public domain in the MTBPS now, rather than delivering a higher debt, higher deficit, higher taxes and austerity driven budget in the run-up to the 2024 election. It is well known that the ruling party is currently polling below the key 50% electoral support level, which, if translated into a 2024 election result, will produce a shifting of the political map. The writing off of municipal debt owed to Eskom is the clearest indication of the government’s susceptibility to populist pressures.

Yet, at least at the level of rhetoric, Minister Godongwana recognised the need to curb government spending and to rein in financial support for State Owned Enterprises. Government has published its intentions to rationalise the ownership, structure and management of

SOEs and to create the opportunity for the private sector to invest in these loss-making entities. Understandably, the private sector has adopted a lukewarm wait-and-see attitude to these broad draft proposals.

Yet, not all of the bitter pills have been swallowed as we can expect an increase in taxation
amounting to some R15 billion in the February 2024 budget. Indeed, it is hard to see at this time exactly where and how this is going to be raised from individual or corporate taxpayers, not to mention the stretched consumer.

But there are two areas that most of us will agree on and that is firstly, the need to curb wasteful and unauthorised government expenditure. Simply put, corruption, cronyism and sheer criminality within the state sector is costing our country dearly and must be tackled urgently. Second is the need to cut the state sector, including the size of the government. The state sector wage bill is frankly out of control and needs to be trimmed drastically. Relatedly, Ministries and Departments need to be rationalised. The most obvious cut can be made by collapsing the Ministry and Department of Public Enterprises. Similarly, the Presidency itself is becoming a second cabinet, with all its attendant costs and duplications.

It is time for some tough choices and hard decisions to be made by government and Treasury, but these should not be made at the expense of tax compliant individuals and corporations who are already carrying an extraordinary burden.