COVID-19 social grant extended until 2025
Government has extended the COVID-19 Social Relief of Distress Grant (SRD Grant) until March 2025 while it considers social security policy reforms and a funding model.
The grant was introduced to support low-income individuals affected by the lockdowns during the COVID-19 pandemic.
Delivering the Medium Term Budget Policy Statement (MTBPS) to Parliament on Wednesday, Minister of Finance Enoch Godongwana said R34 billion has been allocated to extend the grant by another year.
“Over the medium term, a provisional allocation is retained while a comprehensive review of the entire social grant system is finalised. The 2023 Budget indicated that the COVID-19 Social Relief of Distress grant was only funded until March 2024.
“Government proposes that the fiscal framework make provision for funding for the grant for 2024/25. Beyond this, a comprehensive review of the entire social grant system by the Department of Social Development and the National Treasury is required,” Godongwana said.
Over the 2024 medium-term expenditure framework (MTEF) period, 61% of consolidated non-interest spending goes to the social wage — combined public spending on health, education, housing, social protection, transport, employment and local amenities.
“Of this amount, R945.9 billion will be spent on social protection transfers, including the old age grant, the child support grant, the disability grant and the COVID-19 social relief of distress grant. South Africa’s social protection expenditure programme, measured as a percentage of gross domestic product (GDP), is one of the largest among developing countries,” he said.
The 2019 MTBPS noted that by 2040/41, social assistance beneficiaries – excluding the temporary COVID-19 social relief of distress grant – were projected to increase to 22.5 million, necessitating spending on social grants amounting to 3 % of GDP annually.
“This is in line with current grants spending, excluding the temporary grant. If that or a similar type of new grant is made permanent, beneficiaries are projected to expand from 27.3 million in 2023/24 to 40.4 million in 2040/41, which will cost 3.8 % of GDP in 2040/41 and require a corresponding permanent source of funding, such as additional revenue measures,” he said.
Education
Although additional funding has been provided to implement the 2023 public-service wage agreement, provincial education departments are constrained in hiring additional teachers.
The Minister warned that this could lead to larger class sizes and higher learner-teacher ratios, possibly resulting in weaker educational outcomes.
“To mitigate this, the sector will improve the approach to allocating teachers to schools, ensure that learner and teacher support materials are used cost-effectively, manage infrastructure projects more tightly and focus on plans to catch up on lost teaching time,” Godongwana said.
Institutions in the post-school education and training sector, including the National Student Financial Aid Scheme, will need to bring their student enrolment and bursary allocations in line with their budgets.
Planned infrastructure spending will be brought in line with institutions’ ability to spend.
Continued health services
The Minister said the health sector is aiming to maintain service delivery amid budgetary constraints.
“While additional funding is provided to cover wage increases, baseline reductions are being implemented as part of fiscal consolidation. To minimise negative effects, the sector will need to improve efficiency in areas such as overtime payments, medical supplies and security services, and to delay infrastructure projects.”
The South African Law Reform Commission is finalising a report on legal reform to manage medico-legal claims, which constitute a significant financial risk.
“To address funding fragmentation for oncology services, allocations will be shifted from the national health insurance grant to the national tertiary services grant.
“A single grant is also proposed to consolidate the existing personal and non-personal services components of the national health insurance indirect grant. Funding is also redirected towards the Office of Health Standards Compliance to strengthen the Health Ombud,” the Minister said.
Weaker growth, but there is “reason for hope”
South Africa’s medium term economic growth remains weak as a result of the cumulative cost of “power cuts, the poor performance of the logistics sector, high inflation, rising borrowing costs and a weaker global environment”.
This according to Finance Minister Enoch Godongwana who delivered the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday.
National Treasury has forecast a real Gross Domestic Product (GDP) growth of some 0.8% in 2023 with growth forecast at 1.4% between 2024 and 2026.
“This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget. These growth rates are not sufficient to achieve our desired levels of development,” Godongwana said.
Global growth forecasts are also lower at 3% in 2023 from a projected 3.5% in 2022.
“The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects,” he said.
The Minister explained that since February, risks to the South African economy – including the decline in commodity prices, increased inflation, a weaker Rand – have materialised and as a result public finances are significantly weaker.
“The main budget deficit has increased by R54.7 billion compared with the 2023 Budget estimates. This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs. The main reasons for this are a sharp fall in corporate income tax, particularly from the mining sector, although personal income tax collection was better than forecast.
“The result of the shortfall is a substantial worsening in the main budget deficit in the current fiscal year. We are now projecting a deficit of 4.9 percent of GDP compared to our previous estimate of 4.0 percent. Under these circumstances, measures to stabilise public finances and reform the economy to generate higher growth are essential,” he said.
The Minister said the most effective way of funding government is through an efficient tax administration and by broadening the tax base.
“SARS will continue its focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosures, and encouraging honest taxpayers to comply voluntarily.
“Every additional Rand of revenue collected is one Rand less which we have to borrow,” he said.
Godongwana insisted that despite several challenges, the South African economy has showed signs of resilience with real GDP now exceeding pre-COVID-19 pandemic levels.
“In the first half of the year, the economy grew by 0.9 percent despite record levels of load shedding. The tourism sector grew more than 70 percent in the period, driven by the arrival of more than five million international tourists.
“Agriculture expanded by 7.8 percent in the period compared to 2022, while the construction, transport and communications sectors also achieved strong growth. In the words of the President, these are the reasons for hope,” Godongwana said.
Revenue collection projected to decline
Revenue collection is expected to fall by some R56 billion below the 2023 Budget predictions, according to the National Treasury Medium Term Budget Policy Statement (MTBPS).
The MTBPS notes that slowing commodity exports, slower growth, downward revisions of the tax base growth, slowing corporate tax collections and lower net VAT collections have all impacted tax revenue.
The 2023 Budget had projected collections would reach some R1.78 trillion but that has now been revised down to R1.73 trillion.
“In recent years, revenue collection has benefited from a pattern of high prices for South Africa’s commodity exports. In the current year, commodity prices have fallen faster than expected and value‐added tax (VAT) refund claims have risen, resulting in revenue collections projected to be R56.8 billion below 2023 Budget estimates.
“The moderate revenue outlook is limited by the domestic economic outlook and negative shifts in the global economy,” the department said.
This as Minister of Finance Enoch Godongwana tabled the Medium Term Budget Policy Statement in Parliament on Wednesday.
Key factors which have affected revenue collection in the first half of 2023/24 include:
- Significantly reduced mining sector profitability. Mining provisional corporate tax collections fell by R24.6 billion or 55.4 percent relative to the same period in 2022/23. Lower commodity prices, weaker global growth, increased incidence of power cuts and logistical constraints have weighed heavily on the sector.
- VAT refund payments are R21.5 billion higher relative to the same period last year due to stronger-than-expected exports; increased investments in embedded generation; and higher costs of doing business, including the use of more expensive road rather than rail transport. Stronger import VAT collections partially offset robust VAT refund payments.
- A sustained recovery in earnings and higher bonus payments have benefited personal income tax collections, with employees’ tax from the finance sector driving the strong year-to-date growth.
“The tax-to-GDP ratio is expected to decline to 24.7 percent in 2023/24 from 25.1 percent in 2022/23. A recovery in this ratio depends on more sustainable economic growth.
“Main budget revenue estimates for 2023/24 have been lowered by R44.4 billion compared with the 2023 Budget, mainly driven by lower estimates for tax revenue, while National Revenue Fund receipts have been revised up by R11.3 billion mainly due to higher expected revaluation profits from foreign-currency transactions,” Treasury said.
Future revenue
The department said due to the increased fiscal consolidation that is required, “the Minister of Finance will propose tax measures to raise additional revenue of R15 billion in 2024/25 in the 2024 Budget”.
“Tax revenues are expected to increase to R2.1 trillion, or 25.1 percent of GDP, by 2026/27. Revenue collection, however, is projected to fall short of 2023 Budget estimates by R121.4 billion between 2024/25 and 2025/26, with tax buoyancies generally lower over the medium term.
“Relative to the 2023 Budget, main budget revenue estimates for the next two years have been lowered by R152 billion, mainly driven by downward revisions to tax revenue projections. Non-tax revenue estimates for the next two years have also been reduced by R24.4 billion due to lower mineral and petroleum royalties and departmental receipts. Payments to the Southern African Customs Union (SACU) are revised up,” the department said.
Treasury insisted that improved economic growth and further gains in tax administration are critical for improving tax revenues.
“The sharp contraction in commodity prices now under way suggests that the windfall tax receipts that South Africa enjoyed in recent years have come to an end. Under-collections in corporate income tax receipts relative to 2023 Budget estimates flow through to the outer years. Stronger VAT refund payments over the medium term partly reflect higher renewable energy investments and responses to structural constraints in logistics and fuel refinery capacity.
“The outlook for most major tax bases has also been revised lower relative to the 2023 Budget. Personal income tax collections are marginally better than expected due to near-term gains; however, medium-term prospects for employment growth remain muted.
“Although South Africa’s tax-to-GDP ratio remains relatively resilient, stronger economic growth and further gains in tax administration are needed to improve tax revenues over the medium to long term,” the department said.
Government addressing deficiencies that led to grey listing
Government is working hard to address deficiencies in the fight against organised crime and illegal financial flows, says Minister of Finance Enoch Godongwana.
“Since February, when South Africa was grey listed by the Financial Action Task Force (FATF), a large number of government departments and agencies – including the police and the Hawks, National Prosecuting Authority (NPA), Special Investigating Unit (SIU), State Security Agency (SSA), the Reserve Bank, Financial Sector Conduct Authority (FSCA) and South African Revenue Service (SARS) – have been working hard to address these deficiencies,” the Minister said.
Delivering the Medium Term Budget Policy Statement on Wednesday in Parliament, he said last week the FATF noted at its plenary meeting that such work is showing positive results.
South Africa has addressed 15 of the 20 technical deficiencies in its legal framework and has made good progress on 17 of the 22 effectiveness action items, including two that are now deemed to be largely addressed.
“However, there is also a significant amount of work that must still be done, particularly with regard to the investigation and prosecution of complex money laundering cases and terror financing, the identification of informal mechanisms for remitting money around the world, and the recovery of the proceeds from crime and corruption,” the Minister said.
Government expects to address all the deficiencies identified by the FATF by early 2025.
“We are also devising ways to make better and more targeted use of the Criminal Asset Recovery Account (CARA) to address crime. Among these efforts, and emanating from the Presidential project on illicit mining strategy, a recommendation has been made for Cabinet to consider using money from the fund to combat illegal mining.
“The South African Police Service, The Defence Force, the Financial Intelligence Centre, the Department of Home Affairs and the Border Management Authority have all received allocations from this fund,” the Minister said.
Improving efficiencies
He said over the Medium Term Expenditure Framework (MTEF) period, the focus is on improving efficiency and reprioritising funds towards key programmes.
The SAPS will contain costs and streamline operations as headcounts decline due to natural attrition.
“It will foster partnerships with communities and implement reforms to optimise resource allocation, training and technology. Government will continue to fill critical posts in the Border Management Agency and verify assets transferred from departments to the agency.
“To reduce employee compensation pressure, the Department of Defence will implement human resource reforms and review commuted overtime and allowance policies. Furthermore, funds will be reallocated in the Department of Defence to provide for day-to-day maintenance and emergency repairs,” the Minister said.
The Department of Justice and Constitutional Development will reallocate funds over the MTEF period to capacitate the Office of the Legal Services Ombud.
“Funding will also be shifted from the Department of Agriculture, Land Reform and Rural Development to Legal Aid South Africa to improve its capacity to provide legal representation in land rights matters.
“To strengthen its independence, the Judicial Inspectorate for Correctional Services will become a government component in 2024/25. Concomitant resources, currently in the baseline of the Department of Correctional Services, will be transferred with the inspectorate,” the Minister said.
Government will continue to fill critical posts in the Border Management Agency and verify assets transferred from departments to the agency.
Funds allocated for future disasters
To cater for the growing pressures imposed by climate change on infrastructure, especially at the local level, government has created a resource pool to specifically respond to future disasters.
“In this regard, R372 million has been added to the Municipal Disaster Response Grant, while R1.2 billion has been added to the Municipal Disaster Recovery Grant, to cover the repair and rehabilitation of infrastructure damaged by flooding in February and March 2023,” Minister of Finance Enoch Godongwana said on Wednesday in Parliament.
Tabling the Medium Term Budget Policy Statement (MTBPS), the Minister said mitigating the environmental risks posed by climate change must go hand-in-hand with addressing the financial and economic risks posed by climate change.
“The National Treasury is making progress towards developing a disaster risk financing strategy, which will among others, enhance existing risk financing instruments. Despite a robust legal framework, gaps exist in financing and implementation, including overreliance on budget reallocations.
“The National Treasury is analysing fiscal vulnerability and implementing policy reform to improve disaster resilience, reduce risks and ensure resources are efficiently allocated. The strategy adopts a risk-layering approach, incorporating multiple financing instruments based on the incidence and severity of shocks,” the Minister said.
It aims to strengthen governance, improve data quality and build financial and fiscal sustainability. The draft is expected to be ready during 2024/25.
Separately, the National Treasury has initiated the design and piloting of a climate budget tagging system to incorporate climate considerations into public financial management processes.
“The first phase of the project, from October 2020 to October 2022, involved consulting on the design of this system, conducting workshops to raise awareness, reviewing international experience and piloting the system in eight sites across the three spheres of government.
“The next phase is expected to conclude in December 2023. It will involve refining the climate budget tagging framework for additional testing and formal rollout, consulting stakeholders, revising guidance materials and setting up governance arrangements,” the Minister said.
Water management
Over the years, government has observed the impact of poor water management leading to polluted water sources and limited access to clean water for its citizens.
“To address this challenge, the government is making changes to conditional grants, starting with the urban settlement development grant, the integrated urban development grant, and the municipal infrastructure grant.
“These changes include the reconfiguring of grants and revising the grant conditions to align them with the Green Drop, Blue Drop, and No Drop assessments relaunched by the President as part of efforts to ramp up the performance of water service authorities,” the Minister said.
In addition, National Treasury will be working with local governments and the Department of Cooperative Governance and Traditional Affairs to develop new funding models, so that municipalities can continue to earn revenue through the transition to more self-generation of electricity by firms and households.
Fiscal consolidation needed to ensure good financial health
Government will adopt a “prudent fiscal stance” which will aim to balance spurring economic growth, supporting society’s most vulnerable groups, stabilising public finances and reducing economic and fiscal risks.
This tough balancing act was revealed in the Medium Term Budget Policy Statement (MTBPS) released on Wednesday.
“A balanced fiscal stance will…also support higher levels of private-sector investment and employment. In the context of limited resources, this requires prioritisation. Over the next three years, the fiscal framework supports strong control of the public-service wage bill, protecting crucial frontline services and implementing efficiency measures.
“Government’s commitment to restoring the health of the public finances means that the debt-to-GDP ratio is still forecast to stabilise in 2025/26 – although at a higher level than projected in the 2023 Budget,” the document read.
The MTBPS laid out how it will implement fiscal consolidation measures including reduced spending, “efficiency measures across government and moderate revenue increases”.
“The proposed fiscal consolidation measures will be targeted, leaving some functions with funding levels similar to the 2023 Budget, and will also maintain the social wage. Over the medium term, these measures will include the reconfiguration of government, with the merging or closure of public entities resulting in a reduction in transfers to such entities.
“Together, these targeted measures are expected to result in savings and long-term gains from improvements in the efficiency of public spending and budget allocations. This is key to managing the public finances in a prudent and responsible way, and will also support longer-term economic growth.”
The key elements of government’s medium-term fiscal strategy as set out in the MTBPS include:
- Realising a primary budget surplus in the current year, meaning that revenue will exceed non-interest spending for the first time since 2008/09. The surplus will grow over the medium term, narrowing the budget deficit and allowing debt to stabilise by 2025/26.
- Stabilising debt to enable government to arrest the trend of rising debt-service costs. Debt-service costs will peak as a proportion of revenue in 2026/27.
- Targeting spending revisions to protect critical frontline services. Baseline budgets for basic education, health and the police are projected to grow in nominal annual average terms, although below consumer price index (CPI) inflation, over the 2024 medium-term expenditure framework (MTEF) period. Spending on the community and economic development functions will grow by 4.5 per cent and 6.2 per cent, respectively. In contrast, spending on general public services grows marginally over the medium term.
- Implementing a reconfiguration of government functions, as outlined in Chapter 1, in line with the President’s commitment during the 2023 State of the Nation Address.
- Keeping the composition of spending broadly in line with existing policy. Over the medium term, the wage bill continues to grow on average below CPI inflation. Over the next three years, capital payments and transfers will grow by a nominal annual average of 8.4 per cent, while consolidated spending on the wage bill, goods and services, and current transfers and subsidies grows by 3 per cent. Government is implementing measures to improve the financing and execution of infrastructure projects.
- Introducing moderate revenue increases to support fiscal consolidation, while limiting the negative effects on the economy.
- Developing new fiscal anchors to ensure sustainable public finances. Work on these is under way, and an update will be provided in the 2024 Budget.
SOE financial health remains “poor”
The Medium Term Budget Policy Statement (MTBPS) has revealed how South Africa’s weak growth combined with arduous debt repayment obligations and other factors continue to affect the financial health of state-owned enterprises (SOEs).
The MTBPS was tabled in the National Assembly by Finance Minister Enoch Godongwana on Wednesday.
“Since 2019, weak economic growth has compounded the poor financial position of most state-owned companies. Capital investment continues to slow, falling below company budgets, with some large enterprises facing serious liquidity problems.
“Operational inefficiencies, high cost structures and onerous debt obligations continue to hamper profitability and cash flows, intensified by non-payment for services. Many companies are unable to attract funding at favourable rates and terms, and rely on fiscal funding for support,” the statement read.
Debt repayments for SOEs over the medium term are expected to reach R121 billion.
“The large domestic capital repayment in 2023/24 stems from the maturity of bonds issued by the Industrial Development Corporation, the Development Bank of Southern Africa, Transnet and the South African National Roads Agency Limited (SANRAL).
“In the following three years, capital repayments will be relatively lower as state-owned companies build cash flows to manage maturities. Capital repayments are expected to decline significantly after another spike in 2027/28,” the statement said.
Denel
According to the statement, Denel remains in “financial distress” with no annual financial statements submitted since the 2019/20 financial year.
“In March 2023, government disbursed R1.9 billion to Denel through the Special Appropriation Act (2022). The disbursement was proportionate to the entity’s share of proceeds from the sale of non-core assets. Denel used this funding to help settle debt obligations, pay for restructuring and enhance working capital.
“The remaining portion remains ring fenced until other non-core assets are sold. In September 2023, Denel requested that a further R100 million of the ring fenced funds be released to settle the last government guaranteed debt obligation. Following its settlement, Denel has no debt obligations remaining and its government guarantee will be revoked,” it said.
Land Bank
Similarly to Denel, the Land Bank is in default since failing to meet its April 2020 debt obligation.
“At the end of 2022/23, the National Treasury transferred R5.1 billion to the Land Bank, subject to conditions, as part of a R7 billion fiscal allocation. Government has repaid approximately R1.4 billion to all guaranteed lenders of the Land Bank since its default, eliminating its guarantee exposure.
“The remaining portion of the R7 billion fiscal allocation will be transferred to the Land Bank in this financial year to use in its blended finance scheme during March 2024,” the statement said.
Transnet
State freight rail, ports and logistics company, Transnet continues to face “weak profitability and deteriorating liquidity” stemming from “operational challenges, a high debt burden and low cash flows”.
“A prolonged period of underinvestment in capital infrastructure and maintenance backlogs have combined to limit revenue-generating capacity. Transnet has initiated a five-year R122.7 billion capital investment programme, including R99.5 billion for operational maintenance and R23.2 billion to expand infrastructure, starting in 2023/24.
“Further borrowing is restricted by its existing debt, which stood at R130 billion at the end of March 2023, and declining revenues. Transnet’s issued guarantee remains at R3.5 billion,” the MTBPS said.
South African National Roads Agency Limited (SANRAL)
Treasury explained that SANRAL’s investment capacity has been stymied by a long standing dispute over the Gauteng Freeway Improvement Programme.
“Government’s decision to take over the Phase 1 commitments will support SANRAL’s ability to finance the strengthening, rehabilitation and expansion of the toll road network.
“As a result of revisions to SANRAL’s borrowing limits and guarantees associated with the R23 billion injection made in the 2022 Adjustments Budget, SANRAL will now seek approval to revise its funding plan to ensure continued investment in the national road network,” the statement read.
Rising government debt servicing hinders social spending
The servicing of government’s rising debt is “crowding out” social spending in the country, says Finance Minister Enoch Godongwana.
The Minister on Wednesday delivered the Medium Term Budget Policy Statement in Parliament, where he explained the challenge posed to spending on social services.
“It is important… to point out that our debt levels and rising debt service costs are not problems in and of themselves.
“Our challenge is that rising debt service costs are crowding out important social spending, and our economy has not grown fast enough to support increasing expenditure or our current debt levels. Therefore, this policy statement sets out our strategy for avoiding a fiscal crisis and preventing the build-up of systemic risks to the economy,” he said.
This strategy will include reduced spending and reprioritisation “while also taking concrete steps to support growth”.
“None of these decisions are taken lightly. They are taken with the short- and long-term viability of public finances in mind, and in the interests of balanced and inclusive growth,” Godongwana said.
He explained that over the past 15 years, government’s spending has exceeded revenue, with government expected to borrow an average of some “R553 billion per year over the medium term”.
“As a result, gross debt rises from R4.8 trillion in 2023/24 to R5.2 trillion in the next financial year. By 2025/26, it will exceed the R6 trillion mark. We now expect gross government debt to stabilise at 77% of GDP by 2025/26. This is higher than the level we forecast in February.
“Over the next three years, debt service costs, as a share of revenue, will increase from 20.7% in 2023/24 to 22.1% in 2026/27. The cost, or interest of this debt, for next year alone, amounts to around R385.9 billion. Over the MTEF [Medium Term Expenditure Framework], interest costs amount to R1.3 trillion,” he said.
Tightening purse strings
The Minister said in this current financial year, spending has been brought down by some R21 billion, with further reductions of R64 billion and R69 billion contemplated for the 2024/25 and 2025/26 financial years.
“The implications of these adjustments will be partially offset by departments implementing the cost containment guidelines issued by National Treasury.
“It will also be offset by implementing control measures on payroll systems, in line with the directive issued by the Department of Public Service and Administration, as well as implementing the recommendations from the spending reviews conducted in the past two fiscal years.
“Government has made a strategic decision to allocate funds to sectors that are personnel heavy, such as Health, Education and Police Services,” Godongwana said.
Reforms can enhance GDP
Finance Minister Enoch Godongwana says the Medium Term Budget Policy Statement (MTBPS) prioritises reforms aimed at enhancing the growth of the Gross Domestic Product (GDP).
He was delivering the MTBPS in the National Assembly in Parliament in Cape Town on Wednesday.
“To this end, excluding interest, funding for capital projects remains the fastest-growing item by economic classification. Furthermore, we are introducing a new mechanism for improving the pace of delivery of capital projects,” he said.
The Minister was cheerful about the electricity sector’s “enormously positive transformation” due to reforms.
“We are reaping the fruits of our efforts to reform the electricity sector, including the easing of restrictions on self-generation and encouraging private investment in the area.
“At the same time, we recognise the potential loss of revenue due to private electricity generation, and the fact that traditional revenue models relied on by public entities like Eskom, face serious disruption.
“It is for these reasons that our electricity reforms are holistic, evidenced-based, and geared to find a balanced solution to our electricity supply challenges. They take into account not just a particular entity but the transformation of the sector as a whole,” he said.
According to the extended MTBPS, some of the major reforms in the energy sector comprise::
- Three projects under the Risk Mitigation Independent Power Producer Procurement Programme, with capacity totalling 150 MW, will be ready for connection to the grid in November 2023.
- By 2025, nine projects with a total capacity of over 1 000 MW will be connected to the grid under the Renewable Energy Independent Power Producer Procurement Programme, with a further 1 000 MW expected in the next phase.
- In June, Eskom released interim rules to ensure fair and transparent allocation of limited grid capacity.
- In August, Cabinet approved an amendment to the Electricity Regulation Act (2006) for public comment. The amendment aims to establish an independent transmission system operator and a competitive electricity market.
Turning to the logistics system, the Minister said the system faces significant challenges which have cost “up to 5 percent of GDP in 2022, with losses in the region of R50 billion in the minerals sector alone”.
The extended MTBPS notes that the cost of rail inefficiencies last year is estimated at R411 billion.
“Given the scale of the challenges, the National Logistics Crisis Committee was instituted to broaden reforms in the sector and prioritise reforms aimed at resolving the immediate crisis, while also addressing the structural aspects hampering the sector.
“This approach is consistent with the key lesson from our reform of the electricity sector, that resolving these challenges must be based on transforming the sector, and not trying to save an entity,” he said.
Godongwana said a “dysfunctional” Transnet – which remains at the heart of the logistics sector and the movement of goods – has serious implications for business, people’s lives, the economy and the country’s global competitiveness.
“No modern economy can thrive and grow new industries if rail lines are beset by delays, and ports are unable to efficiently handle incoming and outgoing cargo. Transnet’s performance in this regard has been underwhelming and its operations have been strained by a worsening financial state.
“Recognising the seriousness of the situation, the National Treasury is working with Transnet and the Department of Public Enterprises to ensure that Transnet can meet its immediate debt obligations,” he said.
The Minister said in this regard, a Freight Logistics roadmap will guide reforms in the sector.
“The roadmap sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector.
“Only once these three objectives are reflected in Transnet’s corporate and operational plans, will there be a conversation about whether and how government can provide financial support to transform the logistics sector,” Godongwana said.
Improvements in areas such as financial management and financial governance are being prepared.
“These reforms will respond to the recommendations of the Zondo Commission, the Mpati Commission, and the Nugent Commission.
“I will…table an Omnibus Bill for public consultation, which will include key amendments to various pieces of legislation, including the Public Finance Management Act of 1999 (PFMA), Municipal Finance Management Act of 2003 (MFMA) and South African Revenue Service Act (SARS Act),” Godongwana said.
Municipalities apply for Eskom debt relief
More than 60 municipalities who owe Eskom for unpaid bulk electricity services have applied for government’s debt relief arrangement.
This was revealed by Finance Minister Enoch Godongwana while delivering the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday.
“By October 2023, 67 applications had been submitted, totalling R56.8 billion or 97 % of total municipal debt owed to Eskom at end-March 2023. Twenty-eight applications have been approved; the remainder are being assessed and verified with provincial treasuries,” Godongwana said.
The programme was announced earlier this year to assist ailing municipalities who are struggling to pay their electricity bills.
“The debt-relief arrangement for Eskom outlined in the 2023 Budget noted that a large proportion of outstanding municipal debt is owed to Eskom. National government has introduced support to relieve municipalities of debt to Eskom.
“The debt…will be written off over a three-year period, in equal annual tranches. This is provided the municipality complies with set conditions. These conditions include enforcing strict credit controls, enhanced revenue collection [and] up-to-date payment of Eskom monthly current account.
“The ultimate goal is the profound transformation of these municipalities, by empowering them to build financial resilience, amplify their capacity to generate sustainable revenue, and rekindle a culture of paying for services rendered,” Godongwana said.
Eskom Debt Relief Amendment Bill
At the delivery of the MTBPS, Godongwana also tabled the Eskom Debt Relief Amendment Bill which seeks to enhance the “enforceability of the conditions agreed” under the R254 billion government to Eskom debt relief agreement.
“It provides for the payment of interest by Eskom on amounts advanced as part of the debt relief loan. The Amendment also provides for the reduction of the amount of debt relief available to Eskom, in the event that the entity does not comply with the National Treasury conditions.
“These principles and strict conditionalities, greatly enhanced by the Amendment, are a key part of how we will deal with Eskom and all other state-owned entities, to avoid a repeat of the mistakes of previous bailouts,” Godongwana said.
Meanwhile, the extended MTBPS says Eskom’s R254 billion debt relief has been incorporated into both the balance sheets of government and Eskom – “implying an increase in government debt”.
“As at 30 September 2023, government has disbursed R16 billion of the R78 billion debt relief for 2023/24. A task team has been established with officials from the National Treasury, the Department of Public Enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity.
“This [debt relief] arrangement will enable the utility to undertake much‐needed maintenance and investment, and to improve its financial position. Eskom’s financial sustainability remains at risk from poor generating plant performance, declining sales, lack of cost‐reflective tariffs, rising municipal arrears and high debt‐service costs,” the policy statement noted.
Government forges ahead with restructuring the State
Work is underway to reconfigure the structure and size of the State as part of government’s efforts to improve the efficiency and effectiveness of public spending.
“This Medium-Term Budget Policy Statement (MTBPS) supports measures to lift our growth prospects over the medium term and restructures the State to become more effective,” Minister of Finance Enoch Godongwana said on Wednesday while delivering the MTBPS in Parliament.
Government is preparing a joint plan to rationalise departments, entities and programmes over the next three years
The Presidency, National Treasury, Department of Public Service and Administration and the Department of Planning, Monitoring and Evaluation are formulating high-level recommendations on programme and entity closures.
“A dedicated technical team, consisting of the appropriate legal, financial and human resource expertise has been created to facilitate implementation. Over the last three years, the National Treasury has conducted a series of spending reviews.
“In many cases, these reviews have highlighted deficiencies in policy choices and programme design, scale and cost. They have also revealed shortcomings in planning and implementation, which result in overlapping mandates and functions, and duplication of effort. Government considers these inefficiencies to place a further drag on the economy,” the Minister said.
The following criteria will be used to determine whether a department or entity should be closed or merged:
- The performance and size of the entity or department, especially if it is no longer fulfilling its mandate or does not have capacity to fulfil its mandate.
- The ability of a larger department to absorb the function(s) of a small department.
- The duplication and overlap of functions across departments and entities.
- The clarity and execution of the legislative mandate.
“The Department of Public Service and Administration, the National Treasury, the Department of Planning, Monitoring and Evaluation and the Presidency will, over the medium term, review and reconfigure executive functions to address duplication of functions, close ineffective programmes and consolidate departments and institutions.
“Measures will be proposed based on spending reviews conducted in 2020/21 and 2021/22, which suggest a general need to ensure that programmes are designed to be affordable and avoid overlapping policy mandates,” Godongwana said.
The changes are expected to lead to reduced executive responsibilities, higher fiscal credibility and savings in non-interest expenditure
Public sector wage bill
The 2023 public service wage agreement included higher-than-budgeted remuneration increases.
As such government has made a strategic decision to allocate funds to sectors that are personnel heavy, such as health, education and police services.
“Additional funding of R24 billion this year and R74 billion over the medium term will be used to fund the 2023/24 wage increase and the associated carry-through costs in these sectors.
“Since the 2023 Budget, several fiscal risks have materialised. Corporate tax collections – primarily mining sector revenue – underperformed and the revenue outlook weakened. The 2023 public-service wage agreement increased the cost of compensation of employees,” the Minister said.
He indicated significant trade-offs and claw-back mechanisms are being implemented to mitigate the impact of these higher costs on the fiscal framework and to contain the budget for compensation of employees.
“Government has issued a directive to national and provincial departments to implement control measures for creating and filling vacant posts, including restrictions on recruitment for less-critical posts. Government is assessing further controls on personnel budgets, including by providing incentives for early retirement,” the Minister said.
Godogwana said the presidential employment initiative will be extended for another year through repurposing of a portion of funds from existing public employment programmes such as the Expanded Public Works Programme and the Community Works Programme.
“A comprehensive review of public employment programmes is underway,” the Minister said.
Government to support energy transition in automotive sector
Delivering the Medium Term Budget Policy Statement in Parliament on Wednesday, Minister of Finance Enoch Godongwana said details will be provided in the 2024 Budget Review.
“Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent, by pooling the critical-mineral resource base that Africa is endowed with,” the Minister said.
He explained that the transition to a low carbon economy should be integrated into a comprehensive green growth strategy and industrialisation plans.
This involves assessing policy conditions, challenges, and opportunities for diversification and investing in new industries.
“South Africa’s traditional trading partners are intensifying their decarbonisation plans. Many countries introduce carbon pricing mechanisms to make emissions more expensive and incentivise emissions reductions.
“In automotives, a major export and source of employment, the transition to New Energy Vehicles (NEVs) poses an existential threat to South African vehicle production.
“This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure, and supporting production. The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy.” – SAnews.gov.za
Stacker of Wheat
So I\’m real good friends with this guy named Juan Ted. Now, Juan is a pretty improbable guy. He can steal ANYTHING he wants to. Literally anything. It could be the shirt off your back, the wallet in your pocket, or I\’m even sure he\’d find a way to steal your house (And your spouse too). So anyway, one day Juan and I are sitting around watching TV, and they announced that the hope diamond will not be on display anymore and is now getting moved to an undisclosed location. So as we hear this, Juan says \”I\’m gonna steal it\”. Now I know how good Juan is at this kind of stuff, so I just tell him good luck and he goes on his way. Eventually he narrows his search down to a small cave in South Africa. When Juan gets there, he doesn\’t see any guards or anything outside the cave, so he just walks in assuming he was wrong about where the diamond was. He wanders around for a while until he sees a long lit hallway with the hope diamond at the end of it. Confident in his abilities, he strolls over to the diamond and picks it up before realizing its a trap! Suddenly, red lights flashed, armed men came running out, sirens went off. You could hear one of the men say under his breath \”We finally caught Juan Ted.\” But Juan, being the best thief in the world, said \”Not quite. On the count of three, I will disappear.\” As the men looked around confused, Juan began to count. \”Uno. Dos.\” And he disappeared without a tres.
Sly Silvermoon
Fun South African Fact: South Africa in size is three times the size of Texas and five times the size of Japan.