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Commentary: The Supplementary Budget Speech

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The Minister of Finance, Tito Mboweni delivered his Supplementary Budget Speech on the 24th of June 2020.

We asked a few professionals to comment:

Lynette Ntuli, Founding Director and CEO of Innate Investment Solutions says the Supplementary Budget Speech should have been an email:

It lacked depth, detail and a coherent alignment of immediate medium term priorities and actions. The address did little to boost confidence, outline delivery of the stimulus packages or engage business technically.”

Deon van Zyl, Chairperson of the Western Cape Property Development Forum (WCPDF) says that Minister Mboweni called it as it is:

Our spending habits have been exposed for what they are. Too much on salaries and too little in growth-orientated infrastructure. Unfortunately, he did not deal with the performance of local authorities who all seem to have yet again awarded local government officials with substantial salary increases, thanks to the fact that salary negotiations have been outsourced to SALGA. What business would outsource negotiations on more than a third if its business (the typical local authority wage bill)? The bulk of service delivery and infrastructure creation takes place, or at least, should take place at local government level.”

“The Minister’s call for zero-based budgeting is a big step in the right direction. If anything, government role players will be forced to understand the economic crisis we face. The WCPDF supports the Minister in questioning why we are not spending on infrastructure capacity creation.”

Dr Andrew Golding, chief executive of the Pam Golding group says that against the backdrop of ongoing measures to address the Covid-19 pandemic in South Africa, the Supplementary Budget 2020 highlighted several key aspects:

Apart from the health and safety aspects so crucial to reducing the impact of this humanitarian crisis, the prioritisation of infrastructure development, including bridges, roads, railways and ports, is positive news, with 177 infrastructure projects already being considered across public and private sectors. Tuesday’s Sustainable Infrastructure Symposium for SA announced that there were already 55 “shovel-ready” infrastructure projects in the pipeline.

This strategy, together with the re-energising of public-private partnerships, augurs well for increased confidence in our economy among investors – both local and international, and the business sector, with broad spin-offs for job creation, industry, communities and ultimately, the property market.

It is also promising to hear that government is working closely with the private sector to green our economy.  Fuelled by ever-increasing electricity tariffs, the greening of residential property is an ongoing trend noted in recent years, adding value and appeal for home buyers and tenants.

The recent reductions in the interest rate to 40+ year lows – with the Minister calling for the reduction of long-term interest rates to allow business and households to drive faster economic growth, also bodes well for confidence in the economy in general. This will foster investment, help with job creation and as far as the housing market is concerned, provide incentives for first-time and other home buyers and hopefully, see the start of a recovery in the residential property sector.

As far as the younger generation is concerned, we look forward to further details regarding a repurposed public employment programme and a Presidential Youth Employment Intervention, as the youth are indeed the future of this country. They also comprise a rapidly growing percentage of aspirant and savvy home buyers, eager to invest in owning their own homes and planning for the future. The lifting of the threshold for transfer fees to R1 million announced in the Budget in February has already gone some way towards making purchasing a home more accessible for first-time home buyers, as ooba data shows that the average home purchased by first-time buyers was just under R980 000.

What is also evident is that the country needs to continue opening its economy in order to revive sectors hardest hit by the lockdown, including tourism, which is an important source of GDP (8.6% of GDP and supports some 1.5 million jobs).

Moving forward, structural reform and addressing the challenges of key state-owned enterprises remains crucial in creating a favourable environment for the return of investment and growth and to restore fiscal credibility.”

Xhanti Payi, Economist and Director of Nascense Advisory and Research says the Supplementary Budget had good and downright scary elements:

“Government announced increases in expenditure rather than reductions. Government expenditure will exceed R2 trillion in this current revised budget. 

Importantly for business support is being expanded and made available to larger businesses with revenue above R300 million. This is through the loan guarantee scheme meant to help “restart businesses” as the Minister referred to it.  The property sector has been particularly under pressure, and this scheme should come in very handy. 

Further, the infrastructure build should be very supportive to the property sector, especially as it relates to construction and the provision of services. Government has committed R100 billion to infrastructure, which will be spent in partnership with business to leverage its effect. 

However, the country’s debt profile has increased dramatically, breaching 80% for 2020, and seen to peak at 86% of GDP by 2022. This means that the cost of borrowing will remain high. We are not likely to improve our credit rating, and therefore government bond yields will remain elevated. This surely will have an effect on the property sector.”

The South African Institute of Black Property Practitioners notes with concern the recent Supplementary Budget :

“The Minister acknowledges in his speech that the South African economy is expected to experience “the largest contraction in nearly 90 years” of 7,2% and yet the budget presented fails to explicitly outline what key measures will be implemented to drive meaningful long-term structural reform and address the key levers of stagnant growth: small business funding and support, socio-economic inequality, local procurement (private and public), digitalisation and the highly concentrated and anti-competitive structure of most key industries in the South African economy.

We do however note that the Minister announced that the structural economic reform document published by National Treasury in August 2019 titled “Economic transformation, inclusive growth and competitiveness: towards an economic strategy for South Africa” which was originally published as a “discussion document” was “adopted by cabinet last year” and is now official government policy. This comes as a surprise as no official announcement was made to this effect and statements made by Treasury in January 2020 make reference to the document as still being a discussion document. A final version of the document has also not yet been published following the hundreds of submissions made by the public.  This lack of transparency on a matter as significant as economic policy is highly concerning and raises questions about the decision-making processes and political alignment within government structures.

The Minister also asserts that “tax measures of R40 billion over the next 4 years will be required” – this goal will not be achieved without an aggressive strategy to broaden the tax base by implementing inclusive growth and transformation in all sectors of the economy. Job creation and specifically youth employment must remain top of the agenda. Previous Youth Employment initiatives have thus far been unsuccessful in addressing the rising unemployment levels and this will only be exacerbated once the true impact of the COVID-19 economic shut-down is felt. Young people in our country are burdened by high data costs or lack of access to internet which severely hampers their ability to learn online, upskill, and seek jobs. The slow pace of digitalisation and the high costs of data must urgently be addressed if we are to give our young people a fighting chance.

The extraordinarily high debt-to-GDP levels now projected to reach 81% of GDP by the end of 2020, poses an imminent threat to our sovereignty should we find ourselves unable to service the mounting debt bill and this cannot be taken lightly. The adoption of the Zero-based budgeting approach must target a reduction in areas where fiscal leakage is most rife and where funds are allocated to non-productive activities without compromising delivery of keys social support programmes. This will undoubtedly pose a challenge given our current economic climate however we await a detailed breakdown of this proposal as expected in the MTEF.

SAIBPP welcomes the commitment to infrastructure-led growth which echoes the recommendation made in our “SAIBPP 10-point plan to stimulate Economic Growth post COVID-19” published in April 2020.  Infrastructure development and maintenance is a key driver of economic growth and a significant job creator which will leave a positive legacy for generations to come however, we must ensure that this expenditure serves to close the current socio-economic disparities that characterise the South African landscape by prioritising townships, rural areas and areas that have been previously under-resourced. Housing development should also be prioritised.

In conclusion, we reiterate all the proposals made in the SAIBPP 10-point plan to economic recovery post COVID-19, which have been shared widely and publicly. We are encouraged that some of the key proposals have already been adopted such as; the reduction of the repo rate, the subsidising of the taxi industry and the reallocation of budgeted expenditure towards infrastructure development. We urge that structural reforms of the economy must be fast-tracked to increase transformation and reduce socio-economic inequalities, as well as rapid localisation of private and public procurement and the de-concentration of uncompetitive industries to drive investment in SMMEs.”