Disappointing emergency budget lacks new policy announcements to accelerate growth and thus enhance the ability for faster fiscal consolidation

Despite the positive sentiment surrounding the emergency budget, it was disappointing that no new policy announcements were made to accelerate the growth necessary to fast track the fiscal consolidation mentioned.

The numbers outlined by Finance Minister Tito Mboweni were not too surprising as the headline numbers were expected to be disappointing.

No tax increases and positive comments around fiscal consolidation mostly through expenditure reductions over the next few years will be well received by consumers and business alike. The increased focus on infrastructure spending, which will be supported by the involvement of the private sector, is also likely to boost job creation, confidence and eventually growth.

However, both the speech and the review document were littered with warnings about debt and the cost thereof, highlighting the need to reign in the deficit through spending cuts. This was augmented by references to the sovereign debt crisis experienced by Germany, Argentina and Zimbabwe to make the point. This points to the seriousness of government to steer public finances in the right direction.

Apart from a reference in the speech that the State will be implementing policy changes highlighted in Treasury’s 2019 policy document, no new policy measures to address growth were announced, which in my view was very disappointing.

The numbers:
• 15.7% budget deficit for the 2020/21 fiscal year (vs -6.8% projected in the Feb budget)
• $7bn in foreign funding
• R304bn revenue shortfall
• Net increase of R43bn (+R7bn in interest spending and +R36bn in non-interest spending)
      o Non-interest spending: +R145bn in extra spending due to COVID-19 offset by R109bn in savings)
      o Further savings adjustments in October MTBPS
• Zero-based budgeting from October MTBPS
• No tax increases
• Extra social grant spending to stop in Oct as previously announced (allying some fears that it might continue for longer)