On 24 February, Finance Minister, Mr Tito Mboweni delivered the 2021 National Budget Speech. He acknowledged the far-reaching and long-lasting effects of the Covid-19 pandemic, and said that the budget’s main goal was to balance revenue and spending in an uncertain environment. “On one side is a raging pandemic that has led to the most severe global economic contraction in nearly a century.” On the other side “a weak economy, with massive unemployment, that is burdened by ailing state-owned companies, the highest budget deficit in our history and rapidly growing public debt.”
WhatsUp asked Andrew Donaldson to share his thoughts on the 2021 Budget:
The 2021 Budget signals the Treasury’s firm resolve to reverse the rising debt burden while adjusting to a lower growth and inflation outlook. The fiscal consolidation plan was set out in the 2020 MTBPS. It projected an economic decline of 7.8% in 2020 and a R310 billion shortfall in revenue for the fiscal year. Covid-19 related spending on health services and social relief was announced for 2020/21, but expenditure growth for the MTEF period ahead was lowered to just 1.6% a year.
The revenue outcome for 2020/21 will be about R100 billion higher than anticipated in the MTBPS. For the three years ahead, revenue will be R196 billion higher than the October projection. However, Minister Mboweni has kept closely to the MTBPS consolidated spending plans. The revenue gain largely goes to lowering the deficit and debt projections.
For 2021/22, compensation of employees will be R650 billion, marginally higher than the MTBPS R639 billion estimate. For the MTEF period, remuneration will increase by 1.2% a year, whereas the MTBPS projected just 0.8% a year. This near-freeze on government wages is the centrepiece of the fiscal consolidation plan, but it is not the only element. Social grants and other transfers to households will decline over the period ahead. Adjusted to exclude the 2020/21 Covid-19 relief payments, household transfers will grow by just 2.5% a year. Capital spending will increase by 9.2% a year, but even these allocations have been lowered by comparison with the MTBPS projections.
Macroeconomically, the Budget will contribute to keeping inflation near the lower bound of the target band. It will ease the fiscal pressure on capital markets. Tax relief will assist households and firms. The intent is to support business investment and facilitate economic recovery. But the Treasury’s outer year growth projections remain cautious – just 2.2% in 2022 and 1.6% in 2023. The hope, no doubt, is that the recovery will be stronger. Implementation of the vaccine programme is one step towards a more confident recovery. Beyond this, we have to look to Operation Vulindlela, with its focus on key economic reforms and unblocking barriers to growth across all of government.