Mark says that while Tito Mboweni's speech presented plans, there weren't any guidelines as to "how".
On Wednesday 24 June, Finance Minister Tito Mboweni warned of a debt crisis in his revised Covid budget presentation. However, many felt that the presentation posed more questions than providing guidance.
“Rather than providing guidance on the proposed changes, cuts or increases, the Finance Minister elected to use the Supplementary Budget Review as an opportunity to put a monetary price tag on the Covid-19 crisis,” says Spar CFO and 2020 CFO Awards nominee Mark Godfrey.
He further explains that the numbers were shocking. “Tax revenue would be short R300 billion, the budgeted deficit would more than double the February estimate from 6.8 percent to 14 percent and by the 2022/23 fiscal year, debt would exceed the GDP at an estimated 106 percent – and we are facing a fiscal crisis.”
However, Mark says that, against the backdrop of this gloomy picture, the minister described the wide gate opening to a path of bankruptcy. “The only real tangible solutions suggested were zero-based budgeting by the public sector and improved tax collection through strengthened enforcement.”
He says that the first solution will still need to be accepted by the government and it should come as a surprise that this approach wasn’t already at the foundation of their budgeting. “Basically what the minister is then confirming is that government spending is based on years of wasteful inefficiency annually increased by some inflation factor.”
He adds that the improved tax collection simply intends to squeeze the already weakened taxpayers, “although the focus appears to be moving to international taxes with transfer pricing under the spotlight”.
Mark says that what the country, the markets and potential international lenders were waiting for was the “how”, but the Minister stopped short of providing any real guidance.
“No structural tax changes were announced, and only modest tax increases were expected in the future,” he adds. “There is no doubt that the minister's budget presentation would have failed to satisfy markets and lenders, and raises the fundamental question of whether the government has a plan.”
Mark believes that the “horror story” was being presented to shock the government into accepting that real change is vital right now to avoid fiscal disaster, because party politics are still interfering with policy change.
“Perhaps these measures and structural changes are being held back to be announced during the medium-term BPS in October,” Mark says. “This would provide the minister with time to gather support for all changes proposed necessary.”
Mark adds that “time alone will tell, but unfortunately, drastic and urgent action is required now to avoid this fiscal crisis escalating out of control.”