The 2022 Medium Term Budget Policy Statement (MTBPS) aims to address the needs of South Africans and secure our future stability and prosperity.
The finance minister, Enoch Godongwana, declared this in a speech during the tabling of the MTBPS in parliament.
The minister added that the 2022 MTBPS provides for spending adjustments to continue rebuilding lives and infrastructure following devastating flood damage earlier this year.
“It restores fiscal strength and rebuilds fiscal space, despite the unfavourable economic backdrop. It enhances the quality of public services such as Education and Health”, he said.
The 2022 MTBPS also prioritises the “safety and security of our people and invests in future growth by increasing funding for critical infrastructure”.
The minister also pointed out that South Africa faces significant challenges but its “stable macroeconomic policies and efforts to return the public finances to a sustainable position mean that the country is in a better position to weather the storms that lie ahead”.
According to the minister, the current growth rate is too low to address poverty and unemployment challenges and rapid and decisive action is needed on reforms to lift the economic growth rate.
“Government’s structural reforms are centred on increasing electricity production and removing associated regulatory constraints, building confidence to support increased private investment in infrastructure, and creating the conditions in which small and large businesses can flourish and create many more jobs”, he said.
Over the medium term, government plans to boost the capacity of the state, including funding investigative and prosecutorial agencies to root out corruption and strengthening financial management in municipalities.
The minister highlighted that many of the risks outlined in the February 2022 Budget Speech have come to pass.
In the global context these include rising inflation, tightening financial conditions and the ongoing effect of COVID-19, including the more stringent lockdowns in China and their impact on global demand and supply chains.
The outbreak of the Russia-Ukraine conflict has intensified the risks.
The IMF’s global growth forecast for 2022 has been revised down, from 4.4 per cent to 3.2 per cent, and the 2023 estimate from 3.8 per cent to 2.7 per cent.
National treasury points out that a further decline in Chinese economic growth could slow global demand and add pressure to global supply chains, while the tightening of monetary policy could slow global output even further.
In the domestic economy, strong economic recovery in early 2022 was derailed by floods in various parts of the country; industrial action in key sectors, and widespread power cuts.
Real GDP growth of 1.9 per cent is now anticipated in 2022, compared with an estimate of 2.1 per cent in February.
Over the next 3 years, the economy is expected to grow at an average of 1.6 per cent.
Government debt is projected to exceed R4.7 trillion in the current financial year, compared to R627 billion in 2008/09.
Debt-service costs will average R355.2 billion per year over the medium-term expenditure framework.
Debt-service costs are estimated to be R5.9 billion higher in 2022/23 than projected in the February budget.
A consolidated fiscal deficit of 4.9 per cent of GDP is projected in 2022/23 declining to 3.2 per cent of GDP by 2025/26.
A primary fiscal surplus of 0.7% of GDP will be achieved in 2023/24.
Gross government debt is also expected to stabilize at 71.4 per cent of GDP in 2022/23 two years earlier, and at a lower level, than projected in the 2022 Budget Review.
Treasury is proposing that no budget reductions are implemented in the 2023 Budget.
As regards revenue, since the 2022 Budget, revenue collection has exceeded projections and the gross tax revenue estimate for 2022/23 has been revised up, by R83.5 billion, to R1.68 trillion.
R13 billion in spending adjustments for the 2022/23 financial year is allocated in the Adjustments Appropriation Bill.
The largest adjustment — R6.3 billion, or 49 per cent of the total —– is allocated towards disaster relief, in particular, the April flooding in several parts of the country.
Other adjustments in the Adjustments Appropriation include:
R389 million for 24 rural bridges through the Welisizwe Rural Bridges programme;
R500 million set aside to kick off the Home Affairs digitisation project designed to employ 10 000 young people over 3 years; and
R118 million to deal with interim relocation costs and to prepare for the rebuilding of Parliament.
Medium-term changes to spending plans are driven mainly by government’s decision to extend the special COVID-19 Social Relief of Distress grant by one year, until 31 March 2024.
The fiscal framework also includes funding for the carry-through costs of the 2022/23 public service wage increases, as well as for safety and security, infrastructure investment and service delivery.
Consolidated government spending is projected to increase from R2.21 trillion in 2022/23 to R2.48 trillion in 2025/26 at an average growth rate of 4 per cent.
Over the medium term, the social wage will total R3.56 trillion or 59.2 per cent of the consolidated non-interest spending.
The largest allocations in the budget are directed to the education, health and social development sectors.
Government’s consolidated capital spending will increase from R95.1 billion in 2022/23 to R145.4 billion in 2025/26.
As regards the rebuilding of parliament, over the medium-term expenditure framework, R2 billion will be made available.
Over the medium term, government consolidated spending on building new and rehabilitating existing infrastructure will increase from R66.7 billion in 2022/23 to R112.5 billion in 2025/26 including roads, bridges, storm-water systems and public buildings.
Division of Revenue and Changes in Funding for Local Government
Over the next three years, treasury proposes allocating 48.4 per cent of available non-interest spending to national departments, 41.4 per cent to provinces and 10.1 per cent to local government.
Additional funds will also be allocated to local government to support the delivery of free basic services to poor households to counter rising costs of free basic services and rising bulk electricity and water costs.
Addressing Risks from State-Owned Enterprises
A Special Appropriation Bill is tabled to provide additional funding to Denel, Transnet and SANRAL. The allocations will allow the entities to adjust their business models and restore their long-term financial viability.
Funding to SOEs will now come with strict pre-and post-conditions.
Pre-conditions mean that SOEs will need to comply with the conditions before they receive government support, not after, and non-compliance to the conditions means no funding.
Transnet is allocated R2.9 billion to ensure the return of out-of-service locomotives complemented by R2.9 billion from in year spending adjustments to deal with flood damage that affected its operations in Ethekwini.
Denel is allocated R3.4 billion to support recent progress made to stabilise the entity. The allocation will be augmented by R1.8 billion in sale of non-core assets and will unlock a committed order book of R12 billion awaiting execution.
The Gauteng provincial government has agreed to contribute 30 per cent to settling SANRAL’s debt and interest obligations while national government will cover 70 per cent.
Gauteng will also cover the costs of maintaining the 201 kilometres and associated interchanges of the roads and any additional investment in road will be funded through either existing electronic toll infrastructure or new toll plazas, or any other revenue source within their area of responsibility.
To ensure Eskom’s long-term financial viability, government will take over a significant portion of the utility’s R400 billion debt.
“While the selection of the relevant debt instruments and the method of effecting the relief is still to be determined, the quantum is expected to be between one-third and two-thirds of Eskom’s current debt.”
Addressing Financial Crimes
The 2022 MTBPS proposes additional resources to the budgets of the National Prosecuting Authority, the Special Investigating Unit, the Financial Intelligence Centre and the South African Revenue Service, to further improve the capability of the state to investigate and prosecute sophisticated financial crimes.
ON THE HORIZON
A paper on the design options for tax-free allowances under the carbon tax will be published in 2023 for public comment and consultation. Support for climate change mitigation and adaptation measures will increasingly feature in budget policy in the period ahead.
The plan is to table the Draft Public Procurement Bill, designed to enhance transparency, integrity and promote the use of technology for efficiency and effectiveness in public procurement, in parliament in March 2023.
The new Preferential Procurement Regulations of 2022, replacing the now invalid Regulations of 2017, will be promulgated in November 2022 to be effective from 16 January 2023.
The Regulations provide organs of state with the authority to determine their own preferential procurement policies under the Preferential Procurement Policy Framework Act.