Tito’s budget needs to give SA a dose of bitter medicine
The scale of fiscal challenges, within the budget itself and at loss-making SOEs, argues for bold measures now
On October 30 finance minister Tito Mboweni will unveil the medium-term budget policy statement. This provides an update on budget performance in 2019 and critically also sets new revenue and expenditure targets for the next three fiscal years.
Mboweni, who was appointed a little over a year ago, is having to grapple with the uncomfortable reality that SA has a serious fiscal problem with no easy solutions, no leeway to postpone tough decisions and no broad social or political consensus on what needs to be done. Thus, this medium-term budget policy statement represents something of a fiscal Rubicon for the country.
How did we get here? Since the financial crisis a decade ago SA has followed a counter-cyclical fiscal policy, running big budget deficits in the expectation that eventually GDP growth would recover and generate a bounty of tax receipts to fund debt repayment. However, a decade’s worth of persistent growth disappointments, combined with the damage of state capture at the SA Revenue Service (SARS), have weighed on the buoyancy of tax collections, which the government has offset by hiking tax rates a lot over the past few years. ..