The Mini Budget and Beyond

Mini Budget Promises Little

Finance Minister Malusi Gigaba’s recent mini budget (also known as the medium-term budget policy statement) was sadly not very encouraging. Though there was admittedly little to work with, given the state of the country’s finances, some have gone so far as to describe it as ‘depressing’ or even ‘desperate’. It seems the country is in it’s worst financial position since 2009. Critics say that the mini budget showed ‘little insight’ and offered even less in the way of possible solutions which many would have liked to see.

Minister Gigaba announced that Government debt is expected to be 49.1% by the end of this financial year and looks to increase up to 53.9% by 2019/20. In other words, the country’s debt is growing rather than shrinking.  On average over the last few years, it has grown about 7% annually and more than that the cost of borrowing funds is slowly increasing.

It is said that only around 23%of South Africans have any money left over at the end of the month. Everyone else is running on fumes or simply paying back all they earn into their debt. Consumer debt is bad in most households with most families putting on average 75% of what they earn straight into their debt installments each month. Few consumers are able to save anything.

Gross national debt is set to increase to 61% by 2022 and it will take 15% of budget revenue to just service that debt. Then too there is the issue of lack of international investment which ties into the ratings given to SA by agencies such as Moody’s and S&P who have indicated, in the wake of the mini budget, that further downgrading will likely follow.

It follows then that Government has also been collecting less tax than they would like (or need) and this looks set to possibly impact on VAT and personal tax next year. This is something that rating agencies are particularly worried about. With looming elections in 2019, it is likely to see government spending increase rather than reduce, as would be a more obvious solution to “earning” less income.

After the Fact

Several hot topics were just avoided entirely during the mini budget (like the Nuclear Deal and the delayed higher education report) and the recent huge bailouts of both SAA and the Post Office have clearly hit the country’s finances badly. These organizations will require even more funds down the line and more money may need to be borrowed to cover at least some of those costs. Since the mini budget, the Minister has now come out in favour of halting the nuclear deal (saying we have enough energy at present) and is looking to freeze salary increases for senior civil servant staff as he tries to deal with the income/expenditure shortfall

Wait For February

While it is not exactly the mini budget’s job to offer lots of solutions, it is there to indicate what areas are going to need attention and to help put a roadmap in place to be worked on for the big February budget. This mini budget differed a lot from previous efforts at fiscal consolidation and has been described as a setback to business confidence and growth. Some of the most positive moves relating to government spending were announced a few days after the mini budget (maybe in response to all the resultant pressure) that look to help offset the income to expense deficit or, at least, minimise the growing gap.

Between February and now, however, there will be major political decisions that will shape the future of the ruling political party, as well as, probable negative downgrades by rating agencies which will, in turn, affect foreign investment. The country will also face severe price hikes in basic costs like electricity. All these things will shape what happens with the Budget in February 2018.

 

 

 

 

 

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This article was compiled with some kind help from the nice folks at DEBT CENTRAL

 

 

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