# The Medium-Term Budget and the outrage over another SAA bail-out - Link: https://dearsouthafrica.co.za/2020/10/29/the-medium-term-budget-and-the-outrage-over-another-saa-bail-out/ - Published: 2020-10-29T12:39:39+02:00 - Author: dearSA ![DearSA-Budget-2020](https://cdn.dearsouthafrica.co.za/wp-content/uploads/2020/ 10/20190849/DearSA-Budget.jpg "DearSA-Budget") ## You can feel the public anger _By Ciaran Ryan_ [ ](https://tuffiassandberg.co.za/) [ ](https://tuffiassandberg.co.za/) ### Reaction to Finance Minister Tito Mboweni’s Medium-Term Budget was fast and furious. The most obvious source of public anger centred around another bail-out for SAA: this time R10.5 billion, on top of the more than R16 billion received earlier this year. And this at a time of lockdowns, business closures and real suffering. > “SAA should not receive R10.5 billion. Give enough for the retrenchment packages > and let it close down!” wrote one Dear South Africa commentator, responding to > the budget. “The continued funding of maladministered state-owned enterprises (SOEs) is both perplexing and maddening. Why? These organisations should all be sold-off, privatised or shut down,” noted another. The IMF, in characteristically polite language, has already warned SA against continuing to subsidise loss-making SOEs like SAA and rather use that money to promote growth or reduce poverty. One of the more disturbing aspects of the budget is the miserable outlook for growth: 3.3% next year, and between 1.5% and 1.7% for the following two years. “Is that the extent of our ambitions?” asked Martyn Davies, head of emerging markets at Deloitte Southern Africa: “That’s below our population growth. I cannot understand the lack of ambition. We seem to be stuck in this funk of low growth, we need to be growing 3-4% on a continuous basis.” If we can look forward to many more years of 1.5% growth, there is virtually no hope of growing the tax base, and the tax base that does exist will be squeezed even harder than it is. Bear in mind that only 13% of SA’s population of 57 million pay any income tax at all (though they do pay VAT). This is often portrayed as a sign of inequality, the cure for which is even more taxation. Even more shocking is that 1% of the population pay more than 60% of the total income tax. South Africa has now hit the Laffer Curve peak – a principle that proves you can only increase taxes so long before tax receipts start declining. Any attempt to eek further revenue out of an already bludgeoned population will prove this. More wealthy South Africans – prompted by talk of introducing a wealth tax – will seriously consider emigration. The South African Wealth Report for 2020 shows a decline of 27% over the last decade. That trend will likely accelerate. Many people were left scratching their heads once Mboweni presented his budget. “ There seems to be no concrete plan to get out of the fiscal mess we are in,” says Mike van der Westhuizen, a portfolio manager with Citadel. And those plans that have been announced – such as reduced spending on wages and increased infrastructure investment – rely on cooperation from trade unions (unlikely) and government’s ability to implement and manage massive spending projects which it has promised for years, but failed to deliver. Perhaps the most alarming aspect of the budget was the debt: expected to reach 95% of GDP by 2025/6. And even that horrifying prospect rests on some optimistic assumptions: “Government’s economic recovery plan centres around two key pillars: increasing spending on infrastructure development, and reducing expenditure by cutting back on the public sector wage bill,” says van der Westhuizen. “On the first point, it is positive to see that government wishes to unblock investments into infrastructure, driving productive spending. Possible changes to Regulation 28 (which currently prevents infrastructure spending on behalf of retirement funds) and efforts to ensure good governance could therefore see significant funds flow into bankable infrastructure projects.” However, this plan carries significant implementation risk, as it does seem to rely heavily on the pockets of the private sector – which will require a dramatic about- turn in sentiment in a very short space of time. Reducing expenditure through wage cuts relies on the assumption that government will prevail in its ongoing struggle against labour unions. Again, it was positive to see that Mboweni made a firm commitment to the reduction of senior management salaries across the entire public sector. The SA economy is likely to contract 7.8^% in 2020 before rebounding from a low base to achieve 3.3% growth the following year. The spending deficit this year will likely reach 16%. Other emerging and developing economies are expected to contract 3.3% this year before rebounding to grow 6% in 2021. “In other words, the local economy is expected to drop twice as much as our peers, and bounce back by only half the amount,” says van der Westhuizen. SA’s needs to achieve at least 3% economic growth to escape its current debt spiral. That does not seem anywhere on the horizon. Government is shifting funds away from productive spending in education and healthcare to prop up financially insolvent SOEs. Mboweni’s budget lacked any sense of urgency, nor any realistic plan on plugging the yawning deficit. He said he would not rely on higher taxes come the February 2021 budget, but that, too, seems unrealistic. The most contentious of these tax increases would be the rumoured “Solidarity Tax”, which would simply place a positive spin on a wealth tax in an attempt to foster goodwill. Mboweni is one of the better and more competent ministers, but he has a horrible job. This time he seems to have made a royal mess of things. If we are to forgive him anything, it’s that the mess he inherited was more than a decade in the bake. The ANC he is a part of is by no means a reform party. And that is reflected in this budget.