Finance minister delivers 2021 mini-budget

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Finance Minister Enoch Godongwana delivered his first Medium Term Budget Policy Statement (MTBPS) in Parliament on Thursday, November 11.

In his address, Godongwana says policy statement is about navigating South Africa’s path to economic and social recovery by expediting the implementation of structural reforms.

He said this as South Africa, like nations of the world, continues to emerge from the devastation caused by the Coronavirus pandemic that has destroyed lives and livelihoods in its wake.

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“The 2021 Medium-Term Budget Policy Statement is about navigating South Africa’s path to economic and social recovery, drawing on the resilience of her people as well as restoring the sustainability of our public finances and the dignity of our people in the face of a once-in-a-lifetime pandemic,” Godongwana said when tabling his speech.

Mzansi’s path to recovery comes in the wake of a devastating pandemic that is also likely to leave deep and long-lasting scars on the global economy, the Minister said.

He said the scarring impact of the crisis is evident in increased debt levels, income vulnerabilities, while unemployment, poverty and inequality are deepening. 

This, he said – coupled with the recent riots that took lives and destroyed businesses and infrastructure in most parts of KwaZulu-Natal and Gauteng – were indicative of a “crisis like no other”.

Godongwana said despite this, SA citizens remained resilient in the face of extreme difficulties.

“A fast-growing economy will allow for greater revenue collection, making it possible for more comprehensive responses to the challenges we face,” he said.

He said the reforms must be focused on improving competitiveness, productivity, investment and employment.

“Our first immediate task, in this regard, must be to ensure stable energy supply, reduce the risk of load-shedding and accelerate the transition to renewable energy sources.”

SA’s path to recovery comes in the wake of a devastating pandemic that is also likely to leave deep and long-lasting scars on the global economy, the Minister said.

He said the scarring impact of the crisis is evident in increased debt levels, income vulnerabilities, while unemployment, poverty and inequality are deepening. 

This, he said – coupled with the recent riots that took lives and destroyed businesses and infrastructure in most parts of KwaZulu-Natal and Gauteng – were indicative of a “crisis like no other”.

Godongwana said despite this, SA citizens remained resilient in the face of extreme difficulties.

“A fast-growing economy will allow for greater revenue collection, making it possible for more comprehensive responses to the challenges we face,” he said.

He said the reforms must be focused on improving competitiveness, productivity, investment and employment.

“Our first immediate task, in this regard, must be to ensure stable energy supply, reduce the risk of load-shedding and accelerate the transition to renewable energy sources.”

Tighter spending for Government

“Over the next three years, spending will remain restrained. Government will avoid permanent increases in departmental or programme baselines, or further bailouts of state-owned companies, which would compromise fiscal sustainability.

“Instead, short-term tax windfalls will be targeted to reduce the budget deficit and fund temporary priorities, such as extended support for poor households and public employment,” the National Treasury said.

Treasury said government expenditure has exceeded revenue in every year since 2008/09. In that time, the consolidated budget has grown from R712.8 billion in 2008/09 to R2.13 trillion in 2021/22 – an average increase of 8.8% per year. Higher expenditure has not always been efficient or effective.

With debt service costs standing at 21 cents to the rand due to a high expenditure items like the public sector wage bill, the National Treasury has announced that spending will remain restrained over the next three years.

Next budgets to focus on service delivery

Service delivery will be the focus of the budget over the next three years, said Minister Godongwana.

During this period, consolidated government spending is expected to increase from R2.1 trillion to R2.24 trillion over three years.

“Put differently, government will spend more than R6.4 trillion over the next three years,” said Godongwana in his first Medium Term Budget Policy Statement (MTBPS).

He said the country’s unemployment challenge remains a key concern.

“South Africa continues to grapple with long-run unemployment and in the current conditions; unemployment is lagging the economic recovery. Government recognises that we need more private sector jobs, driven by a strong and growing investment climate,” said the Minister.

At the same time, the state must play a role in mitigating the impact of the crisis.

“Accordingly, the 2022 Budget will allocate almost R74 billion towards public employment programmes over the MTEF [Medium Term Expenditure Framework],” said the Minister.

Education, economic recovery also prioritized

Government will also maintain its commitment to supporting fee-free higher education.

In this regard, funding for fee-free higher education and training has been increased. In 2020/21 government spent R44.7 billion on this function. This has been increased to R56.8 billion in the current year.

Over the 2022 MTEF, funding for higher education will total R158.8 billion.

He said this year’s MTBPS is also about continuing the country’s response to COVID-19 and its resultant economic and social impacts, “by providing additional short-term support where needed”.

“This year, we are increasing non-interest spending by R59.4 billion.”

The revised 2021/22 fiscal framework includes R3 billion in the contingency reserve for additional vaccine purchases and R11 billion as a provisional allocation to the  South African Special Risk Insurance Association (SASRIA) for risk coverage in the wake of the unrest in July.

Aside from allocations in the Special Appropriation Bill he tabled in August, most of the adjustments – R20.5 billion – are to cater for the higher-than-budgeted public sector wage agreement.

Addressing social grant shortfalls

The social development function includes government programmes aimed at income protection and social welfare, and for women, youth and persons with disabilities.

In the MTBPS, Godongwana said three main priorities are being considered for the 2022 MTEF period.

There were: addressing shortfalls in social grants, introducing the extended child support grant for children who had lost both parents and researching possible new social support options once the special COVID-19 social relief of distress grant ends in March 2022.

“However, given that all three have significant financial implications, a final decision must still be made on what is affordable given the current fiscal context,” reads the report.

To continue mitigating food insecurity and poverty in 2021/22, the Treasury allocated an additional R26.7 billion to the Department of Social Development to reinstate and administer the special COVID-19 Social Relief of Distress (SRD) grant from August 2021 to March 2022.

The funds would further enable coverage of eligible child support grant caregivers.

“In total, social grant-based relief of distress will amount to R28.3 billion in 2021/22,” the MTBPS reads.

During the year, more than 9.5 million recipients were to receive the short-term income protection. Excluding the special COVID-19 SRD grant, 18.3 million South Africans receive one or another form of social grant.

From April 2022, the early childhood development (ECD) programme will be transferred from the Department of Social Development to the education sector.

Plans for implementation are largely in place, the Treasury said.

The ECD function has been allocated a further R178 million to increase the number of poor children accessing subsidised ECD services through centre and non-centre based programmes. The funds will also support ECD providers meet basic health and safety requirements for registration. The monies will also cover the pilot construction of new low-cost early childhood development centres.

The department anticipated that added beneficiary numbers would grow from 18.3 million beneficiaries in 2020/21 to 22.6 million in 2040/41, assuming that the uptake rate of social grants stabilises at current levels, and excluding beneficiaries of the temporary special COVID-19 SRD grant.

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