Jump to navigation

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').



Related Articles

Challenging the statist quo

Ramaphosa must both placate unions and convince lenders he can reform the state, while fending off plots from inside his party

The fortunes of the ruling African National Congress, and Cyril Ramaphosa's own survival as party and South African president, are dependent on the outcome of municipal elections s...


The 'Ramaphosa Compromise'

The medium-term budget is seen by some as a fudge in the struggle between liberalising reform and preserving the state sector

The government has firmly held the line against the left and the labour movement's efforts to defend ailing state-owned enterprises. President Cyril Ramaphosa is also boosting the ...


Power struggle goes nuclear

The ANC's bitter internal battles threaten to slow government business to a crawl 

On South Africa's Reconciliation Day on 16 December, President Jacob Zuma's speech in the North-West Province was brought to a halt when strong wind and heavy rain blew away the ma...


The time of Mandela

People are together on the streets as they were in the 1994 liberation elections but this time, to celebrate the life of their globally venerated leader

Nelson Mandela's face appeared magisterially on a tableau draped over the front of the Elysée Palace as African leaders and European bureaucrats walked across the courtyard ...


Reverse thrust

South Africa's MTN is eyeing India's Aircel with its 13 million subscribers in 10 of India's 12 telecom circles

South African companies are pushing into India’s markets. So far, the traffic has been one-way with Indian manufacturing companies such as Tata, Mahindra and Mahindra, and pharmac...