Minister Mboweni’s Supplementary Budget Speech – Key points
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The storm shall pass!
The purpose of the supplementary budget is obviously due to the historic nature of this pandemic and economic downturn. A second adjustments budget in October will be tabled together with the Medium‐Term Budget Policy Statement.
The budget does two things:
First, it brings an Adjustments Appropriation Bill and a Division of Revenue Amendment Bill to the House. These Bills ask Parliament to approve the response package for COVID‐19.
Second, it lays a path for the direction the president gave us on 21 April to “not merely return our economy to where it was before the Corona virus, but to forge a new economy in a new global reality”
This Supplementary Budget sets out a road-map to stabilise debt, by improving spending patterns, and creating a foundation for economic revival.
The South African economy is now expected to contract by 7.2 per cent in 2020. This is the largest contraction in nearly 90 years. Inflation will likely register 3 per cent in 2020. Commodity price increases and a weaker oil price have softened the blow, but as a small open economy reliant on exports we have been hit hard by both the collapse in global demand and the restrictions to economic activity.
Fiscal, Monetary and Other Measures
- COVID‐19 economic support package directs R500 billion straight at the problem.
- The South African Reserve Bank has reduced interest rates and made it easier for banks to lend money.
- The SARB has also supported liquidity in the domestic bond market.
- More than 2 million customers have received around R30 billion in relief from their commercial banks.
- Insurers and medical aid schemes have provided premium holidays.
- Landlords have provided rental relief.
Revised Fiscal Framework for 2020/01
- Projected total consolidated budget spending will exceed R2 trillion for the first time ever.
- Gross tax revenue is revised down from R1.43 trillion to R1.12 trillion for the fiscal year.
- Consolidated budget deficit of R761.7 billion, or 15.7 per cent of GDP in 2020/21.
- Gross national debt will be close to R4 trillion, or 81.8 per cent of GDP by the end of 2020/21
- Treasury is looking to borrow US$7 Billion from international finance institutions.
Key Supplementary Budget Allocations
- Health and frontline services – R34,1 Billion
- Social Development – R41 Billion
- Job Creation – R19,6 Billion
Building a Bridge to The Future
Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it.
The Medium-Term Expenditure Framework process will be guided by the principles of zero‐based budgeting which will be applied as a series of overlapping evaluation exercises targeted at large programmes. The following highlight the changes required from this approach:
- We need to find spending adjustments of about R230 billion over the next two years.
- Tax measures of R40 billion over the next 4 years will also be required.
- The Government will announce details to these tax proposals in the 2021 Budget
- A fair and fiscally sustainable Public Sector compensation scheme
- Currently half of consolidated revenue goes towards the compensation of workers in the public.
- Putting infrastructure at the centre of growth
“Everyone who hears these words of mine and puts them into practice is like a wise person who built their house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock.”