Mboweni unleashes relief package, but warns SA’s finances

FINANCE Minister Tito Mboweni this week warned that though the government will be funding the massive economic relief package, the country’s finances remained at substantial risk.

Mboweni presented the relief package to support unemployed people and businesses affected by the recent unrest in KwaZulu-Natal and Gauteng that is expected to amount to R38.9 billion of on-budget items, including revenue measures of R5bn and spending measures of R33.9bn.

The recovery package will be funded through several instruments, including reprioritisation of the national budget and a revenue overrun, without an increase in debt.

The recent civil unrest left destruction costing the economy nearly R50bn and put at least 150 000 jobs at risk following the looting and vandalism of shopping malls and distribution centres.

The National Treasury still projects that the economy will only return to pre-Covid levels in 2023, reflecting the significant and negative impacts of the pandemic on the economy.

Mboweni said the government would strive to provide continued support, but macro-fiscal context would remain constrained as a consequence of the unrest and the lockdown.

He said South Africa’s fiscal situation should not be conflated with the capacity of advanced economies, as some commentators mistakenly do.

“South Africa is not an advanced economy, and it is untrue that a government, which prints its own currency, cannot experience a debt crisis,” Mboweni said. “Fiscal adventurism is not the solution to South Africa's problems. We will continue our strategy of restoring the health of public finances.” Support to small businesses that are not covered by state insurance, Sasria, will amount to R2.3bn. This is composed of reprioritisation of R1bn and additions of R1.3bn to the baselines of the department of trade and industry, and small business development.

As a result, Mboweni said fiscal consolidation announced in the February Budget remained a key pillar of Treasury’s strategy and they did not intend to deviate from it.

“In this regard, we are keenly aware that the announcement of these relief measures comes in the context of existing pressures on the fiscus,” he said.

Tax collections for the second quarter of 2021 to date were up on estimates, as collections increased from a number of sources including VAT and the mining sector.

Investec chief economist Annabel Bishop said the violent unrest had probably shaved R50bn from the revenue overrun, which could result in the government needing to borrow money.

“With the damage to the economy and tax base from the violent riots, the revenue collection overrun is now likely to be closer to R50bn, while the fiscal package will not fully cover the losses faced by businesses,” Bishop said.

“However, absent the greater than anticipated recovery in the global economy, the government may have had to resort to increased borrowings to fund the fiscal riot relief packages.”

Nedbank senior economist Nicky Weimar said it was encouraging that the government has adopted a budget-neutral package.

Weimar said, however, the effect of the additional spending on the fiscal position , the need to reduce the budget deficit and the debt stock would be determined by several factors.

“Strong revenue collections will help to narrow the budget deficits. However, a weaker-than-expected economic growth trajectory would dampen the fiscal outlook.”