Budget 2020: High Noon

Key points

• Finance Minister Tito Mboweni delivered his Budget Speech 2020 to Parliament on February 26.
• National Treasury now expects real GDP growth of only 0.9% this year and 1.3% in 2020, compared to forecasts of 1.2% and 1.6%, respectively, announced in October 2019.
• A downside scenario with mounting distress at State-Owned Enterprises (SOEs) could result in a recession in 2020.
• Suggestions for growth-boosting reforms include resolving the electricity issue and changes to benefit small business, amongst others.
• Fiscal revenues will be R63.3 billion less in 2019/2020 compared to the forecast ofFebruary 2019.
• Apart from the usual adjustments to fuel and sin taxes, National Treasury is looking at increased efficiencies as the South African Revenue Service (SARS) to boost revenue in the medium term.
• No changes were announced to tax rates despite widespread expectation of an increase in value-added tax (VAT).
• The government to discuss with labour unions what options are available to reduce staff costs and move the public sector wage bill towards a more sustainable trajectory.
• National Treasury is planning for R160 billion in staff savings over the medium term, thought this still needs to be negotiated with labour unions.
• Consolidated government spending will grow by an average of 5.1% over the medium term largely as a result of fast-rising debt service costs.
• There is no immediate detail on funding for the state bank and sovereign wealth fund.
• Fiscal budget deficit will widen to 6.8% of GDP in 2020/2021 – the largest shortfall since 1992.
• Public debt will breach 70% of GDP.
• The risk of South Africa losing its investment-grade credit rating has become more pronounced.
• While Moody’s Investors Service will find some good news in the Budget Review 2020, most of the key ratings-related elements remain very negative.
• Action is needed to right the fiscal ship – and don’t count on a bailout.

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