November Medium Term Budget Policy Statement paints rosier picture than February 2021 Budget
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The November 2021 Medium Term Budget Policy Statement (MTBPS) painted a rosier picture than either the February 2021 Budget and the October 2020 Medium Term Budget Policy Statement (MTBPS) as revenue growth has been stronger than expected, in part due to higher commodity prices recently, while the benchmarking exercise by Statistics South Africa (Stats SA) lifted the 2020 Gross Domestic Product (GDP) level by 11% which improved the fiscal deficit and gross government debt to GDP rations.
This meant that the contraction in 2020 has been revised to 6.4% from February’s 7.2% and October’s 7.8%, while the higher revenue in 2020/21 means that tax revenue projections are higher by R120.3 billion than forecast in February, although some private sector economists such as those from Nedbank expect the over-run to be as much as R150 billion.
The government intends to use the higher-than-expected tax revenue to reduce the fiscal deficit and provide additional short-term support for health, social protection, job creation, and peace and security.
The Treasury aims to follow a fiscal conservation course over the Medium Term Expenditure Framework (MTEF) of the next three years, which should result in a primary budget surplus, that is where revenue is higher than non-interest spending, in fiscal year 2024/25.
Gross government debt is therefore expected to peak at 78.1% of GDP in 2025/26 and decline thereafter, which should allow debt-service costs to fall below 22% of main budget revenue by 2026/27.
In terms of debt service to GDP, the Treasury expects that to peak at 5.3% in 2025/26 from only 2.4% in 2012/13.
The Treasury said that this fiscal consolidation will be supported by structural reforms such as the easing in the licensing of electricity generation and a series of bid windows for power from Independent Power Producers (IPP) that unlock private sector investment and thereby boost job creation.
The 2020 Budget forecast that revenue will grow by 11.6% in 2021/22 after a 11.0% reduction in 2020/21, while expenditure falls by 1.6% after a 12.6% jump.
In the 2021 MTBPS the revised growth for revenue in fiscal year 2021/22 is now 18.9%, while the 2020/21 revenue contraction has been revised to 7.8%.
The public sector wage was expected to be reduced by early retirement of public servants. Ordinary public servants can take early retirement at age 55, while teachers can take early retirement at age 45. In 2019 the expectation was that the early retirement programme would reduce the public sector head count by some 30 000, but as of the end of 2020 only a tenth of this reduction has been achieved.
Covid-19 had a severe impact on civil service employment as the number of resignations was 32% lower than the 5-year average. It fell to 18 587 in 2020/21 from 23 539 in 2019/20 and 36 662 in 2015/16.
The number of deaths while in service more than doubled to 10 974 in 2020/21 from 5 261 in 2019/20.
The MTBPS highlighted the ageing of the public service as now one in three public servant is now over the age of 50, while a decade ago, the figure was only one in four. This is especially pronounced in the education sector where almost half (45%) of teachers are over the age of 50.
In the 60 to 65 age cohort there were 30 000 public service officials in this cohort in 2006/7, which has now more than doubled to 63 000 in 2020/21.
This is why the reduction in the civil service wage bill remains a government priority, while debt service costs on the other hand will continue to escalate, with debt service costs rising to R365.8 billion in 2024/25 from R162.6 billion in 2017/18.
BUSINESS REPORT ONLINE