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Vol 62 No 4

Published 18th February 2021


South Africa

Mboweni set to raise taxes and cut spending, trying to balance budget after the pandemic hit

The Finance Minister wants to raise 40 billion rand over the next four years and slow down borrowing

A year of economic slowdown worsened by the Coronavirus pandemic has rendered the choices faced by Finance Minister Tito Mboweni this week still starker.

On 24 February, Mboweni will read his budget, likely to include a slew of tax hikes and spending cuts, against a backdrop of a slow-growing national economy – GDP is forecast to rise 2.8% this year after 1.4% growth last year, according to the IMF.

According to a group of economists surveyed by Bloomberg News, South Africa's consolidated budget deficit is projected to reach 13.9% of GDP this year. That's over double the projected deficit of a year ago, before the pandemic's effects kicked in.   

Even for the forthright Mboweni, known for his critiques of state companies such as South African Airways, the political challenge of balancing the budget is formidable: he wants to cut 308 billion rand (US$21bn) in state spending, mainly from the wage bill, over the next three years and raise R40bn in new revenues by 2025.

Most of the economic pain will be inflicted on public sector workers, a core part of the African National Congress's support base. Trust between the public sector unions and the ANC government is running low, after the latter went to court to have an agreement on state salaries annulled.

En route to those targets, Mboweni will be raising taxes and slowing its domestic bond issuance. The three main ratings agencies – Moody's, Standard & Poor's, and Fitch – have all downgraded South Africa's debt. 

The country's gross debt-to-GDP ratio will be running at about 80% of GDP at the beginning of the 2021-22 fiscal year. One bright spot is tax revenues, which last year overtook projections by R100bn, which could help Mboweni with the budget deficit.

It may also show some early success for the government's campaign to reform the state revenue service which had been badly damaged by corrupt management during Jacob Zuma's presidency. 

As a sharp reminder of that era and the political problems ahead, Zuma is due at the High Court in Pietermaritzburg on 23 February to face charges, jointly with the French arms and transport company Thales, of fraud, racketeering and grand corruption in the government's R600bn arms deal in the 1990s. 

Last week, Zuma ignored an order by the Constitutional Court to give evidence to Deputy Chief Justice Raymond Zondo's Commission on state capture. Zuma and his ally ANC Secretary General Ace Magashule, who is also facing corruption charges, are trying to build up grassroots resistance to the government's economic policies, directly challenging ANC President Cyril Ramaphosa's leadership (AC Vol 62 No 1, Challenging the statist quo & Vol 61 No 22, The 'Ramaphosa Compromise').



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