The much-awaited 2020 budget speech was arguably one of the most important budget speeches in South Africa’s recent history. Much can be said about the woes that the country faces both economically and socially after almost a decade of maladministration, corruption, state capture and poor leadership. In light of our well-known challenges, the budget speech was well received by most as an honest and sincere reflection of the state of affairs in South Africa.
The snapshot below shows that South Africa’s annual expenses are greater than our total revenue with a shortfall of R370 billion rand.
Finance minister Tito Mboweni was right to put the cards on the table in his statement around unsustainable debt levels, never-ending demands of state-owned enterprises, a bloated public wage bill and prolonged stagnant economic growth amongst other things. The budget speech was a sobering reminder of the fundamental issues however whilst providing recognition that drastic steps must be taken to prevent the country from falling into a “debt trap”. One gets the sense that enough people in influential positions are now charging on to try and tackle the real issues despite the apparent factionalism within the ruling party.
The graph below shows the escalating cost to service our debt. Its clear that the current trajectory is unsustainable.
VAT collections account for approximately 1/3rd of the total tax revenue. Some suspected that easiest way to increase tax collection was to increase VAT by 1% or 2%. To the surprise of most, this wasn’t suggested by the minister of finance.
One of the big decisions which was announced in the budget speech was to take measures to cut the public wage bill. It has become clear that the government can’t tax its way out of the current deficit and rather needs to cut its expenses.
The graph below compares the public wage bill (blue bars) to tax revenue (yellow bars).
In 2020/2021 an estimated 42.3% of all tax collections will goes towards paying public employees. In an environment where productivity, maintenance and service delivery is poor to say the least, public wages is an area which can’t be ignored.
Over the past 12 years the salary of public employees has grown by 40% over and above annual inflationary increases. This is roughly the equivalent of your employer paying you an annual inflationary increase + 2.8% each year over 12 years.
Trade unions have been very vocal about the proposed changes to the public wage bill with potential support by political parties such as the EFF. Despite the much-needed decrease to the public wage bill, government is now tasked with the dreary task of implementing the change.
A well-delivered, honest budget speech has renewed the reason for hope that a viable strategy has been formulated to tackle the mammoth issues that we face. South Africans will now look to see the successful implementation of the proposed changes. We are not out of the woods yet, but we have found an encouraging path to follow.