Medium Term Budget Policy Statement – “We have the power to change our course”



Arnaaz Camay, Senior Executive: Tax, Baker McKenzie Johannesburg


“We have the power to change our course”, said the Minister of Finance, Malusi Gigaba in his Medium Term Budget Policy Statement last week. He identified improving South Africa’s economic growth outlook as the biggest challenge, as growth projections for the country were revised downwards from 1.3% to 0.7% for 2017, despite an improving global economy. The projections were also far from the ambitious target of 5.4% per year as set out in the National Development Plan (NDP). Similarly, in the NDP, the government aspired to bringing the unemployment rate down to 6% by 2030, yet unemployment has now reached 27,7% which is its highest level since September 2003.

The Minister highlighted the need for economic growth to be characterised by radial economic transformation that went beyond “tick-box” compliance towards changes in ownership, control, management and production. He said broad-based economic transformation would open up the economy to the previously marginalised population and reform key sectors of the economy, which would, in turn, boost business confidence. To stimulate economic growth, he said these confidence boosting measures would be accompanied by specific micro-economic reforms.

He said government aimed to kick-start this growth and to improve confidence by implementing the 14-point action plan as well as accelerating its progress on structural and microeconomic reforms. Interestingly, it was proposed that government’s delivery on these commitments would be complemented by a stimulus package, the details of which were not provided by the Minister.

As a result of the slow economic growth, the Minister announced that there had been a significant reduction in the net tax revenue, which was projected to fall short of the budgeted estimate by R50.8 billion. In addition, R13,7 billion was needed to recapitalise SAA and the SAPO. This had significantly eroded government’s fiscal position and although the government had used its contingency reserve to fund the majority of this shortfall, a gap of R3,9 billion remained.

The Minister announced that in order to address some of the revenue shortfall in the medium term, a combination of expenditure cuts and revenue increases would be made. He said announcements on these fiscal efforts would be made in the 2018 Budget Speech in February next year. The 2018 Budget Speech is also expected to contain announcements on the government’s efforts to subsidise higher education despite the fiscal constraints, so that no academically deserving student is excluded due to financial constraints.

In order to help improve taxpayer confidence in respect of concerns raised regarding the capacity of SARS to deal with transfer pricing and aggressive tax structuring, the Minister mentioned that he was engaging with SARS to take concrete and practical steps to address these concerns.

The stabilisation and revitalisation of State Owned Enterprises (SOEs) is a distinct objective of the Minister, who said that the government was tired of being dragged into the crises of those it employs to govern and manage SOEs.  He noted that the trend of SOEs in seeking bailouts to finance operational expenditure, inefficiency and waste must also be brought to an end.

Notwithstanding his statement on SOEs, the Minister said that having a national carrier was in the public interest and he planned to bring in a strategic equity partner to assist the newly appointed board of SAA in executing its turnaround strategy. In respect of Eskom, the Minister conceded that its governance, leadership and financial management issues were of major concern to government and as such it would appoint a new Eskom board before the end of the year.The Integrated Resource Plan would inform the future energy mix, the Minister said, and he repeated the words of the President that a nuclear energy programme would be implemented at a pace and scale the country could afford.

Finally, the Minister recognised that government must move at the pace required by the economy but implored that it could not do it alone.