Finance Minister delivers a supplmentary budget via remote connection to Parliament on June 24, 2020. Picture: MASI LOSI
Finance Minister delivers a supplmentary budget via remote connection to Parliament on June 24, 2020. Picture: MASI LOSI

Finance minister Tito Mboweni has committed the government to debt stabilisation to keep debt as a percentage of GDP within limits.

Stabilisation of SA’s ballooning debt is critical if SA is to avoid the sovereign debt crisis Mboweni has warned about.

The stabilisation would, among other things, require tax measures of R40bn over the next four years, the minister said in his speech in parliament on the budget required because of the economic decline brought about by the Covid-19 pandemic, the shortfall in revenue, and the R500bn relief package.

According to the Supplementary Budget Review there will be tax increases of R5bn in 2021/2022, R10bn in 2022/2023, R10bn in 2023/2024 and R15bn in 2024/2205.

Details of the tax measures will be laid out in the 2021/2022 budget.

In the first supplementary budget tabled in parliament on Wednesday, Mboweni said the government intends to narrow the deficit and stabilise debt at 87.4% of GDP in 2023/2024. The cabinet has also adopted a target of a primary surplus by 2023/2024.  

Mboweni said the Treasury’s early projection is that gross national debt will be close to R4-trillion, or 81.8% of GDP, by the end of this fiscal year compared to an estimate of R3.56-trillion or 65.6% of GDP projected in February.  

Debt-service costs will increase from R204.8bn in 2019/2020 to R236.4bn in 2020/2021, and are expected to reach R301.1bn, or 5.4% of GDP, in 2022/2023.

“The public finances are dangerously overstretched. If we remain passive, economic growth will stagnate. Our debt will spiral inexorably upwards and debt‐service costs will crowd out public spending on education and other policy priorities,” Mboweni said.

“We are already spending as much on debt‐service cost as we do on health in this financial year. Eventually, the gains of the democratic era will be lost.”

Mboweni stressed that debt is the weakness of the fiscus — too much has been accumulated and the economic downturn will add more. “This year, out of every rand that we pay in tax, 21c goes to paying the interest on our past debts. This indebtedness condemns us to ever higher interest rates.”

The Treasury expects the domestic economy to contract 7.2% against the backdrop of a global contraction of 5.2% this year.

Consolidated budget spending, including debt service costs, will exceed R2-trillion for the first time. Gross tax revenue collected is expected to be more than R300bn lower than the 2020/2021 fiscal year, being revised down from R1.43-trillion to R1.12-trillion.

A consolidated budget deficit of R761.7bn, or 15.7% of GDP is forecast for 2020/2021 compared to the deficit of R370.5bn or 6.8% projected in February.

Mboweni said the government needs to find spending adjustments of about R230bn over the next two years. He said the government intends to borrow about $7bn (R117.95bn) from international finance institutions to support the pandemic response.

The Budget Review said the gross borrowing requirement for the current year has increased by R344.2bn to R776.9bn, with the Treasury expecting it to decline to R580.5bn in 2022/2023.

The supplementary budget proposes R21.5bn for healthcare spending related to Covid‐19. It also proposes a further allocation of R12.6bn to services at the front-line of the government’s response to the pandemic. This would support increased screening and testing.  

To support vulnerable households, an additional allocation of R25.5bn to the social development department is proposed, for a total relief package of R41bn.

A further R6.1bn is allocated for youth employment in addition to the R6.1bn already allocated.

The division of revenue presented in the 2020 budget has been revised so that the national share for 2020/2021 increases from R758bn to R790bn; the provincial share decreases from R649bn to R645bn; and the local government share increases from R133bn to R140bn.    

An additional R11bn has been allocated to local government through the equitable share and a further R9bn will be reprioritised within allocated conditional grants to fund additional water and sanitation provision, and the sanitisation of public transport at local government level.

The government will also be allocating R3bn to recapitalise the Land Bank.

Update: June 24 2020
This article has been updated with tax and other financial information throughout.