Upbeat finance minister Tito Mboweni delivers some tough news
The government’s inflated wage bill may affect infrastructure development projects in the Eastern Cape, according to finance MEC Oscar Mabuyane.
Reacting to the announcement that the national and provincial government departments would have to shoulder an unscheduled R30.2bn wage bill caused by above-inflation salary increases of civil servants, Mabuyane said the province would have to rejig its economic recovery plan.
Finance minister Tito Mboweni delivered his maiden mid-term budget speech in the National Assembly on Wednesday, giving a frank assessment of the country’s poor economic footing.
Growth projections for the year were halved from 1.5% to 0.7%.
“For ordinary South Africans, it has become a difficult time,” he said.
“Prices, such as electricity and fuel, have risen. Unemployment is unacceptably high.
“Poor services and corruption have hit the poor the hardest.”
Mboweni, who sounded somewhat sombre when he moved on to the topic of the public servants’ wage bill, said the National Treasury had not budgeted for the R30.2bn salary increases over the medium term.
“National and provincial departments will be expected to absorb these costs within their compensation baselines.”
The department of public service and administration would work with the departments to help them implement the process and ensure key development projects are not affected.
“The wage bill remains the biggest cost pressure on the budget,” Mboweni said.
“Over time, wages have crowded out other goods and services and capital investment, particularly in health, education and defence.
“In some cases, this has contributed to a build-up of unpaid invoices in provincial deover partments. Around 85% of the increase in the wage bill is due to higher wages, rather than head-count increases.
“The national wage ceilings remain unchanged, despite the new wage agreement.”
Mabuyane said while it was too early to tell where the money would come from, he conceded that infrastructure projects would be affected.
The Eastern Cape has been lagging behind with infrastructure development compared with its provincial counterparts.
A large part of its strategy the last few years was to focus on road construction and other infrastructure as a means to grow the economy.
Mabuyane said: “This [announcement] is a very sad one, I must say.
“I am not sure where we are going to get the money from, but we will need to find it somewhere. This calls for reprioritising for the economic recovery plan.”
He said the province was already in a tight situation, with its budget declining due to Eastern Cape residents migrating to other provinces.
“The budget is going down and the more our people leave the province, the more our province gets squeezed.
“We are going to experience tight management and fiscal consolidation around [this] particular issue.”
But Mabuyane said that for the government to stimulate the economy, funds had to be injected into infrastructure development.
Some of the other highlights from Mboweni’s speech were adding sanitary pads, cake flour and bread flour to the list of VAT-free goods.
Mboweni spoke passionately about the need to abolish pit latrines in schools.
“Nobody should learn in a school that is unsafe, minister of basic education [Angie Motshekga].
“Our children must have access to adequate sanitation.
“We have committed to eradicating pit latrines at schools.”
Government debt, instead of decreasing, is on the rise.
Ideally, the debt to GDP ratio should be below 50%, but it was expected to reach 59.6% by 2023, Mboweni said.
Mboweni, 59, moved to draw a clear line under the Jacob Zuma era.
“Too much money goes missing,” he said.
“We must restore good governance and fight corruption in all of its forms.
“Money that leaks out of the system is no longer available to support our efforts to reduce poverty.”
He spoke about the corruption within the Giyani Water Project, which he likened to “a cesspool of corruption”.
The R3bn water project that was meant to supply water to more than 50 areas in Limpopo has been abandoned.
Economics expert Charles Wait said he was disappointed that there was no mention of the drought-ridden Eastern Cape, particularly the Kouga Dam which is sitting at about 55% capacity, as well as the Nooitgedacht Water Scheme.
“What has happened to the plans of circa 2010 to enlarge the capacity of the Kouga Dam?” Wait said.
Nelson Mandela Bay Business Chamber CEO Nomkhita Mona said she hoped that a portion of the money that had been allocated toward water projects would be given to the Nooitgedacht scheme.
“The completion of this important project has been delayed due to late payments by the government to contractors,” she said.
In response to Mboweni’s statement that the electricity sector was being restructured, Mona said the chamber was in full support of the initiative.
“This announcement follows just days after Eskom indicated it would apply for a 15% tariff increase a year for the next three years.
“The Business Chamber has been actively defending the interest of businesses by lobbying against unreasonable tariff hikes since 2006, and we will continue these efforts as a reliable electricity supply at competitive prices is an absolute prerequisite for sustainable economic growth,” Mona said.
Mboweni has also introduced a R14.7bn grant structure to improve infrastructure at informal settlements and a R1bn housing subsidy to support middle- and low-income home buyers.
He said that, at this stage‚ the government was not planning any further tax increases.
However, he cautioned that the fuel levy was likely to continue rising in the next three years – which means high petrol prices are not about to go away anytime soon.
The DA said the finance minister had revealed a “fullscale budget blowout”, with rising debt likely to force taxes up.
Moody’s, the only ratings agency that still has South Africa’s debt at investment grade, could review its assessment shortly.
“The conversation that has to take place with the ratings agencies has to be an honest one,” Mboweni said before the meeting.