Finance Minister Tito Mboweni has said the government will miss its tax target by a whopping R300 billion this year as a result of the COVID-19 pandemic.
In a virtual supplementary budget speech to Parliament on Wednesday, Mboweni also said South Africa will have its worst economic contraction in 90 years and its debt is unsustainable.
“We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts,” he said.
Key quotes from Mboweni’s speech
“The South African economy is now expected to contract by 7.2 percent in 2020. This is the largest contraction in nearly 90 years. Inflation will likely register 3 percent in 2020.”
“Projected total consolidated budget spending, including debt service costs, will exceed R2 trillion for the first time ever.
“Gross tax revenue collected during the first two months of 2020/21 was R142 billion, compared to our initial forecast for the same period of R177.3 billion. Put another way – we are already R35.3 billion behind on our 2020/21 target.
“As a consequence, gross tax revenue for the 2020/21 fiscal year is revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by over R300 billion.”
“Taken together, the measures and adjustments we present translate into a consolidated budget deficit of R761.7 billion, or 15.7 per cent of GDP in 2020/21. This is compared to the deficit of R370.5 billion, or 6.8 per cent of GDP projected in February.
“This increase is mainly due to the revised revenue projections and pay‐outs from the Unemployment Insurance Fund. The narrower measure, known as the main budget deficit, is projected to be 14.6 per cent of GDP.”
Gross national debt
“Our early projection is that gross national debt will be close to R4 trillion, or 81.8 per cent of GDP by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6 per cent of GDP projected in February.
“Without external support, these borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else.
“For this reason, we need to access new sources of funding. Government intends to borrow about US$7 billion from international finance institutions to support the pandemic response.”
Health and frontline services
“The Supplementary Budget proposes R21.5 billion for COVID‐19‐related healthcare spending. It also proposes a further allocation of R12.6 billion to services at the frontline of our response to the pandemic.”
“To support vulnerable households, an additional allocation of R25.5 billion to the Social Development department is proposed, for a total relief package of R41 billion.”
“The Economic Support Package sets aside R100 billion for a multi-year, comprehensive response to our jobs emergency.
“The President’s job creation and protection initiative will be rolled out over the medium-term. It will include a repurposed public employment programme and a Presidential Youth Employment Intervention. In this year, an amount of R6.1bn is already allocated, and a further R19.6 billion has been set aside mainly for this purpose.”
Division of revenue
“The national share for 2020/21 increases from R758 billion to R790 billion, the provincial share decreases from R649 billion to R645 billion and the local government share increases from R133 billion to R140 billion.
“An additional R11 billion is allocated to local government through the equitable share. A further R9 billion will be reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport.”
“Government will narrow the deficit and stabilise debt at 87.4 percent of GDP in 2023/24. Cabinet has also adopted a target of a primary surplus by 2023/24.
“Government will also be allocating R3 billion to recapitalise the Land Bank. This Bank holds 29 per cent of South Africa’s agricultural debt.”
“The principle of zero‐based budgeting is that we must see demonstrable value for money: Eskom will need to show progress in meeting the milestones as laid down in the Roadmap. This is non-negotiable.”
To read Tito Mboweni’s supplementary budget speech in full, click here.