Mboweni targets cuts to public wage bill to balance books – but allows some personal tax relief

There is little room for manoeuvre – “the economic and revenue outlook has deteriorated”, is how the Budget Review 2020 put it.

Or as Finance Minister Tito Mboweni put it in the traditional pre-Budget speech media briefing: “We have to get our house in order. And it is going to be a painful process…” he said, however, dismissing any claims of austerity.

“We need to wake up, all of us…  We can’t have all the things we want at the same time. It’s a difficult time when we discuss with the family: ‘We can only have pilchards, not rump steak’. But austerity would be we can’t have pilchards or rump steak.”

The Budget documentation shows tax collection came in R63.3-billion short due to the decimated economic growth down to 0.4%, even if it is anticipated to inch up to 0.9% in the course of the 2020 financial year.

Debt service costs are the fastest-growing increases – by 12.3% in 2020 - to R229.3-billion, representing 15.2% of the R1.95-trillion Budget. This represents an acceleration as debt service costs had increased from R184-billion in 2018 to R202.2-billion in 2019, or just short of 11% in 2019 to.

The next fastest-growing spending item in Budget2020 is economic development at 6.6%.

Borrowing is up to R407.3-billion in 2020, or R71.9-billion more than in 2019, rising to R497.5-billion in three years’ time.

The budget deficit stands at 6.8% of gross domestic product (GDP).

And debt to GDP is at 60.3% now, expected to increase to 71.6% in 2022/23.

Spending pressures remain on the socio-economic front. Key reforms needing finance, be that infrastructure investment or job creation measures. Social grants are a lifeline for millions of South Africans: all go up 4.5%, or effectively R80 to raise pensions and disability grants to R1,860, while the child care grant rises by 4.7% or R20 to R445 a month.

In these difficult times, there was simply no room to raise taxes in the 2020/21 financial year, beyond the usual culprits of sin taxes, fuel levies and the like.

And while Mboweni indicated that he would have liked to cut taxes more, personal income tax nevertheless was dropped slightly, averaging  3% for most wage earners, depending on income levels. Those earning an average of R265,000 a year, will pay R1,500 less income tax, Mboweni said in his prepared speech, while those earning R460,000 a year, will save R3,400 on their income tax.

The key instrument to balance South Africa’s books was simply this: tackling the public sector wage bill that currently makes up about 38% of government expenditure.

“Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery,” says the Budget Review, adding later how civil servants’ salaries had grown “40% in real terms over the past 12 years without equivalent increase in productivity”.

“Government recognises that public service employees should be fairly remunerated, but is obligated to balance compensation demands with the broader needs of society as reflected in the Budget.”

At the pre-Budget briefing, Mboweni was uncharacteristically subdued in his commentary on cutting the public sector wage bill.

“For the credibility of our fiscus, the R160-billion or so must be found for all our sakes. There’s no point in being victorious, trying to keep your cents, but losing our pounds,” he said, adding: “On the wage bill issue, we will find each other. It will take a bit of time…”

Mboweni knows that the political push back is on.

That much became clearer when some 18 hours before his Budget speech in the National Assembly, in a strongly worded statement labour federation Cosatu said government’s proposal to suspend the already agreed to wage increases – part of the 2018 three year deal and due on 1 April 2020 – was “a direct attack on collective bargaining” . 

That, Cosatu said in the statement issued just before 9pm on Tuesday evening was a “irresponsible” and “an act of provocation”.

“If the government attempts to smuggle this review in (Wednesday’s) Budget speech, the CEC (Central Executive Committee, Cosatu’s highest decision-making structure between congress) will regard it as a declaration of war and there will be parting of ways with government going forward,” said the Cosatu late-night statement.

“This reckless destabilisation of the public service is not informed by the state’s delivery programme but is an ideologically driven programme aimed at pandering to the rating agencies. This does nothing for staff morale, motivation, and productivity…”

It could all be posturing, especially as negotiations for the next three-year salary agreement will start from May 2020 or June 2020.

But the government is clearly hoping to get organised labour’s agreement. In an unusual move, senior ministers, including Deputy Finance Minister David Masondo, Public Service and Administration Minister Senzo Mchunu, Labour and Employment Minister Thulas Nxesi also met the South African Federation of Trade Unions (Saftu), the rival to ANC partner Cosatu.

“Saftu rejects any attempt to resolve the crisis of capitalism with austerity programmes at the expense of workers in the public service in particular and the working class in general,” the federation said in a subsequent statement on Tuesday.

The bottom line, according to Budget2020, is that the public wage bill must be reduced by R37.8-billion in the current 2020/21 financial year, R54.9-billion in 2021/22 and R67.5-billion in 2022/23.

It’s a tough ask because even with these cuts the public sector wage bill would still stand at 32% of government expenditure.

And there is doubt on the appetite by public servants to forego their jobs, even with incentivisation. The 2019 Budget offer of early retirement without pension penalties was “slower than anticipated”. Only the Police has finalised implementation, according to the Budget documentation, although other departments have submitted proposals that are being processed.

On Wednesday Mboweni largely limited his comments on the public wage bill to Mchunu – and instead highlighted measures to limit corruption and wastage in the system, including changing travel subsistence rules.

Co-incidentally, National Treasury has stepped in where corruption and maladministration was not dealt with. Buffalo City, Mbombela and Msunduzi have been suspended from the public transport network grant for 2020 after failing to show progress on the back of previous transfers, according to the Budget Review.

But Mboweni’s unusual subduedness could be because his Cabinet colleagues and National Treasury leaders have told him to be schtumm. The finance minister admitted he had lost the debate on further tourism taxes – although the Budget documentation shows a R190 levy on international air travel slipped in.

On taxes, Mboweni gently indicated a “corporate tax accommodation” may be on the cards, if all goes well. But the Budget Review signals the end of corporate tax incentives for airport and port assets and rolling stock and such.

But for now, the usual culprit taxes will go up, like the sin taxes on alcohol and tobacco – but now also electronic cigarettes – while the single use plastic bag levy rises to 25 cents per item in keeping with climate crisis mitigation measures that also see the incandescent light bulb levy going up by R2 to R10.

And as is traditional, the fuel levy will go up – by 16 cents a litre from 1 April 2020 – as will the Road Accident Fund (RAF) levy, by 9 cents a litre from the same date. Effectively that means a litre of petrol, or diesel, will cost 25 cents more from 1 April 2020.

But in South Africa’s low-growth, high-unemployment economy all previous expectations are blown out of the water. And with departmental baseline reductions, officially “reallocations”, already on that fine edge of cutting inefficiencies without compromising delivery, there was little else to look at except public servants’ salaries.

It was a down-to-earth Budget2020 with the finance minister not mincing his words – now or never, and everyone has to pull together.

“The aloe ferox survives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it,” said Mboweni in the opening to his prepared speech. “Our economy has won before, and it will win again.”

But not without a (political) fight. DM