[BREAKING] Gigaba: There are tough times ahead for SA
The Finance Minister says the tax revenue shortfall is R50.8 billion and this has severely eroded the country’s financial position.
CAPE TOWN - Finance Minister Malusi Gigaba has warned of tough times ahead for South Africa’s economy, saying the challenges have to be confronted head-on and cannot be sugar-coated.
Gigaba says his medium term budget review gives an “honest view of the situation the country is in”.
“It is not in the public interest, nor is it in the interest of government, to sugar-coat the state of our economy and the challenges we are facing.”
EFF MPs delayed the start of Gigaba’s address by nearly 20 minutes, calling him a “Gupta stooge”, before leaving the house after they were threatened with being thrown out of the chamber.
Delivering his inaugural Medium Term Budget Policy Statement in Parliament, Gigaba says the tax revenue shortfall is R50.8 billion – and that this has severely eroded the country’s financial position.
This is the biggest drop in revenue from VAT, personal and corporate taxes since the 2009 financial crisis and represents a gaping hole in the budget.
Gigaba’s warned of tough times ahead for the country.
“The period ahead is not going to be an easy one. Our resolve is to remain on course and not to deviate irretrievably from the fiscal consolidation goals we embarked on a few years ago.”
Briefing journalists ahead of his speech, Gigaba would not be drawn on whether this meant the February budget would announce further tax hikes.
He cautioned that tax increases – as well as further cuts to government spending – could be counter-productive and stifle the growth the economy desperately needs.
In the briefing, Gigaba made it clear that the government’s ambitious nuclear programme is off the table for now at least - because it’s simply unaffordable.
And he’s come out strongly on the need for decisive action to overhaul the way state-owned companies (SOCs) operate and are run - pinpointing Eskom as a major threat to the country’s economic well-being and saying all SOCs need to be weaned off government support in the form of guarantees.
Delivering the Medium Term Budget Policy Statement, Gigaba also announced R13.7 billion to re-capitalise SAA and the SA Post Office - partly through using funds set aside for emergencies in the contingency reserve.
Gigaba says the government intends to sell off some of its assets – with its Telkom stake still in the mix – to prevent this bailout causing a R3.9 billion breach in the expenditure ceiling.
Gigaba says the consolidated budget deficit will increase to 4.3% of GDP this year, a significant increase against the 3.1% target set by his predecessor Pravin Gordhan in the February budget. It’s forecast to fall back to 3.9% in the next three years.
“We have been carefully deliberating the best fiscal strategy to ensure the programme of measured fiscal consolidation is not derailed. None of the options are free of pain,” Gigaba’s prepared speech says.
This means gross national debt is set to reach 60% of GDP by 2022 – while Treasury says stabilising it below that level over the next 10 years will need spending cuts or tax hikes amounting to 0.8% of GDP (against GDP for 2018/19 that translates into R40 billion).
“Government’s short-term options to reverse this situation are limited,” Gigaba says, warning that “the economic impact of further expenditure cuts or tax hikes could be counter-productive”.
“Some would argue for the imposition of more austere measures to aggressively rein in the growth of public debt. Others might argue that to reduce (government) spending levels would further damage the economy.”
Gigaba says further budget cuts “will involve hard choices and difficult compromises”.
“Sudden or deep additional cuts that are not well-targeted could put severe pressure on already stressed government budgets.”
At the same time, he says the government is acutely aware of the dangers of mounting government debt going unchecked.
The government will have to borrow R52.8 billion more than expected, mainly due to the shortfalls in revenue from VAT, personal and corporate taxes.
A team of Cabinet ministers reporting directly to President Jacob Zuma will develop proposals to stabilise the debt, with the sale of government assets also on the cards – but details will only come later.
Since Gigaba started speaking the rand has extended losses and at 3pm was trading 1.5% weaker against the dollar.
Read Malusi Gigaba's Medium Term Budget Policy Statement 2017 below