2-3 min read (or getting dressed for your morning run)
Finance Minister, Tito Mboweni finally gave the budget speech after it was postponed by a week. “We must rebuild our economy, rehabilitate our public finances and recover from the devastation wrought upon us by COVID-19”, he proclaimed. The Medium-Term Budget Policy Statement (MTBPS) was made on 28 October 2020 and we’re sure you’ve already heard the hype regarding struggling SAA’s R17 billion-slice of the pie, but what is the MTBPS exactly and why is it important?
What is the Medium-Term Budget Policy Statement?
The MTBPS proposes a group of solid policies aimed at decreasing government deficits and debt accumulation as well as stimulating economic growth for the next 5 years. This basically means the government has determined the best way to pay off its debt and the speech, as given on the 28th of October, is to keep the country informed.
Some takeaways from this year’s MTBPS
Mboweni argued South Africa finds itself in a similar position as that of 1994 and that the country has to rise from difficulty and can look forward to some prosperity ahead.
The South African economy is expected to contract by 7.8% in 2020. It is then projected to grow on average by 2.2% over the next three years.
The SA government has had to spend much more than it earns (and therefore had to borrow more money than it would have liked). The idea now is to reduce this “deficit” from an expected R266 billion in 2021/22 to R84 billion in 2023/24 and move to a surplus by 2025/26.
Government proposes no overall increase in taxes for 2020/21. Personal income tax relief through inflation adjustments in all brackets was proposed. The revitalisation of SARS is expected to contribute to increased tax revenue over the medium term.
As you might have read, the fiscal framework set its sights on stabilising the ratio of debt-to-GDP at around 95%. What does this mean? Great question. A low debt-to-GDP ratio indicates the economy produces and sells goods and services sufficiently enough to pay back debts, and yes, stabilising at 95% might not seem like a great percentage, but it’s the best we can do right now (gulp).
There might be some light at the end of the Eskom-tunnel, with some municipalities allowed to buy electricity from alternative sources as the finance minister stated that improving the supply of electricity is urgent. R23 billion has been assigned to Eskom.
The SA government currently spends approximately R2 trillion per year. Over the medium-term, total spending is estimated to be R6.2 trillion, of which R1.2 trillion will be spent on learning and culture, R978 billion on social development and R724 billion in the health sector.
Low-income South Africans will be aided with the Social Housing Programme on which R20 billion will be spent over the next 10 years.
Annually, 300,000 students might find some refuge in the estimated R96 billion budgeted over the next 10 years towards a Student Housing Programme.
The government aims to make it easier for retirement funds to invest in infrastructure, but don’t worry, the trustees are expected to put the interests of retirement fund members first.
Large reductions to the public service wage bill, one of the largest expenditures of the government, are expected to take place, or for any increases to be put on hold for the next three years. This will prove to be a difficult feat due to unionisation.
Why should you care?
Making a public statement regarding the country’s financial plan for the next couple of years provides some transparency between the decision-makers and the public. The measures outlined will affect citizens directly and will also provide a general idea of the state of the country. This will aid in any investment, saving and any other financial decision you have to make on a daily basis. And hey, it’s good to know what your country is up to.