Overall, it was a balanced budget and one to be embraced
Unions will not like the public-sector wage cuts, but they are better than begging international donors to keep SA afloat
The 2020 national budget was always going to be pressurised or constrained, but as it was tabled by finance minister Tito Mboweni in parliament this week, it was also encouraging in terms of its view on expenditure as well as its growth perspective.
It was a balanced effort that now needs the buy-in of all government departments and stakeholders to take the country forward. Some of the proposals may be painful for the government’s union allies, but this will fade to insignificance should Mboweni be forced to knock on international doors for funds to keep SA afloat.
The main aim of the budget was clearly to increase growth by keeping taxes low and to relax corporate tax in the future, both of which will make SA a more attractive option for investors.
The good news for the over-stretched SA taxpayer is some much-needed and deserved relief for the first time in five years. The extra dispensable income this brings should get consumers spending and help stimulate economic growth.
Mboweni took a courageous stand by becoming the first finance minister to insist on cutting the public-sector wage bill. We must pull through the maze of the current economic slump together to reach a future that will eventually benefit all South Africans.
According to the Treasury the average remuneration in the public sector is higher than the average remuneration in the rest of the economy. By the Treasury’s calculations, the actual level of average annual remuneration for public-sector employees is about R393,000, meaning that public servants in national and provincial government earn about 20% of all wages earned in the non-agricultural formal sector.
Fiscal drag was accounted for in personal tax through the adjustment of income brackets. This was long overdue, as it has remained the same for two years
The necessary R160bn drop in remuneration costs for national and provincial administrations and other public bodies will account for the bulk of the anticipated savings of R261bn in projected cuts, equaling 1% of GDP for the next three years. While the government’s history in cutting the wage bill is less than encouraging, its intent is to be commended — but time will tell whether good intentions prove to be a better bet than increased taxes.
The joint allocation of R60bn for SAA and Eskom may feel like throwing good money after bad until the two state-owned entities (SOEs) can be turned around. Of course, SA’s energy crisis should be fixed, we cannot keep the lights on without Eskom. The quicker we can throw open the energy market and municipalities can start working with and buying from independent power producers (IPPs), the less the impact will be on the grid. Eskom CEO André de Ruyter seems to have practical strategies in place and knows what needs to be done to rectify the situation.
As far as SAA is concerned, we cannot continue to throw taxpayers money into a seemingly bottomless pit to fund its failing endeavours. A state airline can be run efficiently, as is the case with the Ethiopian Airlines and the UAE’s Emirates, but only along business principles and managed by capable hands — and without government interference. After its business rescue has come to an end, it will hopefully be a smaller concern that can move forward on a profitable basis.
Learning, culture and education
The largest spending areas will be learning and culture, which receives R396bn followed by healthcare with R230bn and social development with R310bn. KPMG agrees that these are necessary operational areas and the allocations will bring better outcomes for our workforce and productivity as a whole. All three areas are good for growth.
The education sector struggles with a shortage of teachers and is looking to appoint more, where needed, to fulfil the needs of our youth. This will require some smart moves to strike a balance between the intended reduction of the civil service’s workforce and the need for new appointees.
In terms of social development, it needs to be shown that the country is prepared to fight a lot more crime than at the moment. A safe environment is an incentive for investors.
Capital expenditure would have been another deserving area, but we don’t have the money to put into it for now. However, infrastructure will need attention soon.
Fiscal drag was accounted for in personal tax through the adjustment of income brackets. This was long overdue, as it has remained the same for two years.
The formation of an SA sovereign wealth fund with a target capital amount of R30bn should prove an important and useful long-term tool for saving and investment for future generations, and can also contribute to strengthening the fiscal framework. The fund can play an important role as a counter-cyclical fiscal tool that can be utilised in difficult times to keep the economy afloat. Funding sources, such as the proceeds of spectrum allocation, petroleum, gas and mineral rights royalties, the sale of non-core state assets and future fiscal surpluses, are a good starting point.
Lastly, the plans for further powers for auditors to strengthen regulatory oversight and curb corruption should be fully supported and welcomed. KPMG believes the independent panel of experts that will soon be appointed to review practices in the auditing profession is a necessary step that will further strengthen the Independent Regulatory Board for Auditors (Irba).
As an industry, we should not be left behind in terms of reform and we should, indeed, be an auditing profession that is ethical and working towards the good of the nation. We expect the selection of the panel will be done through a consultation process with industry players, and KPMG would like to give input to the resulting recommendations.
Overall, we are encouraged with the direction of the budget. Limiting expenditure on one hand while offering relief to taxpayers on the other shows a balanced approach in difficult times.
• Sehoole is CEO of KPMG.
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