Mini budget - Some SOE bailouts, R350 grant extension as numbers signal improved debt and better 2023 outlook

26 Oct 2022

Transnet gets its bailout, as does Denel and Sanral. And the social relief of distress grant is extended to April 2024. Under the motto of restoring public financial health, much about Wednesday’s Medium-Term Budget Policy Statement is about better fiscal numbers and stabilising debt.

The choice of which State-owned Entity (SOE) gets bailed out through a Special Appropriation Bill and which isn’t, when the list of troubled public entities is long and varied, is an interesting one.

Wednesday’s Medium-Term Budget Policy Statement (MTBPS) left behind the Post Office — which MPs were recently told was effectively no longer a going concern — the national airliner SAA that needs R3.5-billion to finalise the private sector deal, and many others like the Land Bank, still vulnerable despite getting R10-billion over the past three years.

While the MTBPS confirms Eskom will get relief on its R400-billion debt, no announcement was made on the rands and cents — although between one and two-thirds of this is being considered. The 2023 Budget is the target date for a firm announcement, including conditions so Eskom, which received well over R200-billion bailout staggered over ten years from 2019, would not again return for help from the national coffers.

But Transnet got R5.8-billion, split 50:50 to repair infrastructure damaged in the KwaZulu-Natal and Eastern Cape floods, but also to boost rail freight logistics with locomotives.

Arms manufacturer Denel gets R204.7-million immediately to meet debt obligations, with another R3.4-billion — with conditions — for its turnaround.

And the South African National Roads Agency (Sanral) gets R23.7-billion “to settle maturing debt and debt-related obligations”, a reference to due e-toll debts that, however, does not chart a clear way out of the longstanding controversy over the Gauteng Freeway Improvement Project.

“For the past seven years, we have been dillydallying… Therefore we have come to the conclusion we have to close this once and for all. We are going to take Sanral’s debt to the sovereign, but that debt will be split between national and Gauteng government,” Finance Minister Enoch Godongwana told journalists in the traditional pre-MTBPS briefing.

The debt — it runs to a total of R47-billion, but not all of this is due now or in 2023 — would be split outlining a 70:30 split, with Gauteng also taking over road maintenance.

https://www.dailymaverick.co.za/article/2022-10-23-minister-godongwana-will-have-to-walk-a-financial-tightrope-on-mini-budget/

It’s been difficult choices all around. But these allocations, and others, were possible because tax collection is up by 9%. The South African Revenue Service (Sars) is bringing in an additional R83.5-billion.

“Funding to SOEs will now come with strict pre and post-conditions. Pre-conditions mean that SOEs will need to comply with these conditions before they receive government support, not after. Non-compliance to conditions means no funding,” said Godongwana in his prepared speech for the House.

The MTBPS notes the Land Bank’s financial distress and that “the process to finalise a solution is ongoing”. Ditto, Eskom debt relief, but no word on SAA, the Post Office, the SABC and others.

Public finances

On the numbers front, the finance team was upbeat.

Gross debt is stabilised sooner than expected at 71.4% in the current 2022/23 financial year. The Budget deficit drops to 4.9% in 2022, and further to 3.2% by 2025. A primary Budget surplus, or revenue greater than non-interest spending, of 0.7% is expected by 2023/24.

Those numbers are crucial, signalling more sustainable public finances — even if debt servicing costs remain South Africa’s second biggest Budget item after social spending at R307.7-billion in the 2022/23 financial year, increasing to R380.7-billion the following year.

And that primary Budget surplus was described as “a great achievement” by acting National Treasury Director-General Ismail Momoniat.

“We have been really successful on the fiscal consolidation and we will be able to enjoy the fruits from next year… It lays the basis for dealing with the challenges…”

A little earlier, Godongwana told journalists he was “excited” because with debt consolidation and reducing the deficit has come the opportunity to make key spending decisions in core functions like police, education and health.

From Budget 2023 an additional R8.9-billion already was earmarked safety and security, alongside R11.3-billion of infrastructure and R66.9-billion for health education.

That would allow the SAPS to hire 5,000 new recruits in each of the three-year budgetary cycle, and for the prosecution services and the Special Investigating Unit (SIU) and Financial Intelligence Centre (FIC) to focus on fighting crime and corruption.

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Fulfilling the implementation plan of the State Capture commission recommendations was key, as were measures to ensure South Africa was not greylisted.

Additional allocations would also be made in the February 2023 Budget for health to “partly reverse the real reduction in provincial health budgets that occurred following the (Covid-19) pandemic”. This would include monies to address backlogs in surgeries and oncology, and also HIV/Aids and TB treatments.

Social security

Meanwhile, the Covid-19 social relief of distress grant has been extended by one year in the absence of any decision on a Basic Income Grant that civil society has vocally lobbied for.

“Discussions are still underway to consider options for a replacement for this temporary grant. No final decision has been made about a replacement or how it would be financed. As a result, the temporary grant will be extended for one year until March 2024,” says the MTBPS, adding later any new social grant must be matched by new revenue, or spending cuts.

A certain sense of irony perhaps emerges from the MTBPS as this extension is partly funded by almost R2-billion not spent during 2022 as fewer people took up this grant. Criteria had changed, and when a public outcry led to amendments the take-up remained around 7.4-million people, well short of the ten million who previously received the monthly R350.

In a move to counter criticism of austerity, also made by the governing ANC alliance partner Cosatu, the MTBPS doggedly emphasises that just short of 60% of government spending is on the social wage. That’s health, education, social support, housing, transport and basic services.

Meanwhile, R6.39-billion takes care of unforeseen and unavoidable expenditure, from R118-million for Parliament to start repairing the fire damage — over the three years from 2023, a total of R2-billion is pencilled in — R3.29-billion via Cooperative Governance for the KwaZulu-Natal and Eastern Cape flood damage, R442-million for Operation Chariot, or the South African National Defence Force (SANDF) deployment in flood affected areas.

But in a socio-economic climate with stubbornly high joblessness, poverty and growing hunger, structural reforms to kick-start economic growth remain sticky.

“Increased power cuts will compromise an already fragile and recovering economy. Conversely, accelerating the implementation of energy reforms could mitigate the adverse effects of load shedding and support higher business confidence and investment…” states the MTBPS, adding, “Industrial action in the ports and rail sector could constrain economic activity and reduce South Africa’s competitiveness.”

In the run-up to Wednesday’s MTBPS the public service wage bill was front and centre, not only because of government’s eagle eye on spending, but also stalling wage negotiations.

By Tuesday, no agreement had been reached between government and labour unions. The Public Servants Association (PSA) gave the required seven-day notice to strike as Cosatu announced mass pickets.

Acting Public Service and Administration Minister Thulas Nxesi in a media briefing on Tuesday pushed for acceptance on pain of losing the allocations of what effectively is a 3% public wage deal — government’s spin on the numbers takes it to 7.5% including the non-pensionable R1,000 monthly payment.

It emerged the deal would mean R20.5-billion for the monthly gratuity, and R14-billion in new money for the 3% wage increase, with another R8-billion for pay progression increases.

And that’s pretty much what’s been set aside from next year.

In one of the annexures to the MTBPS, it emerges from 2023 government has set aside additional funding of R43.6-billion to increase the headcount in policing, education and health. Or as the MTBPS document put it,

“The allocation to police will allow the department to recruit nearly 5,000 officers annually over the 2023 MTEF (medium-term expenditure framework) period. Education and health will also be able to increase headcounts.

It’s that future forward spin that the finance minister emphasised in his prepared speech: “We cannot ignore the relationship between democracy and the economy, and the relationship between politics and inequality… The MTBPS reminds us of the urgent need to pursue the reform of our economy in a consistent manner, with the freedom of our people in mind.” DM

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