More money for Eskom as fuel levies and sin taxes spike

Finance Minister Tito Mboweni talks tough on SOE lending and slashes public sector wage bill.

File: Finance Minister Tito Mboweni talks tough on SOE lending and slashes public sector wage bill.

CAPE TOWN - Finance Minister Tito Mboweni did not mince his words in delivering a frank assessment of South Africa’s finances with plans to further support Eskom, cut the number of civil servants and raise fuel levies and sin taxes in his 2019 budget on Wednesday.

Economic growth is projected to remain subdued GDP growth projected at 0,7 percent for 2018, 1,5 percent in 2019 and 1,7 percent in 2020.

Government will offer a further R69-billion over three years to Eskom to support its planned unbundling into generation, transmission and distribution.

“Pouring money directly into Eskom in its current form is like pouring water into a sieve. I want to make it clear: Government is not taking on Eskom’s debt.

"Eskom took on the debt. It must ultimately repay it,” Mboweni said in Parliament.

Without mentioning the word privatisation once, the process of placing at least the management of state assets in private hands was intimated throughout Mboweni’s speech.

“Isn’t it about time the country asks the question: Do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?” he asked.

LIVE VIDEO: Mboweni to deliver 2019 budget speech

Along with reiterating President Cyril Ramphosa’s undertaking that strategic equity partners will be sought for public enterprises, Mboweni said further government guarantees would only be offered on the condition of the appointment of an independent Chief Reorganisation Officer (CRO).

“We must tighten up guarantee rules. The CRO will undertake full operational and financial review,” he said.

Although income taxes were left unchanged, the fuel levy will be increased by 29 cents and 30 cents for petrol and diesel respectively.

Sin taxes were also in the minister’s sights, increasing duties on alcohol and tobacco.

Duties on a can of beer or cider will attract a further 12 cents per 340ml serving. Wine and sparkling wine will attract a further 37 cents and 84 cents in duties, while all bottles spirits will now include R4,54 in duties.

This will not plug the hole in South Africa’s finances though. Revenues in the 2019 budget are expected to be R1,58-trillion while expenditure is projected at R1,83-trillion – meaning the country will spend R243-billion than is earned through taxes.

“Put another way, we are borrowing about R1-billion a day, assuming that we don’t borrow money on the weekend,” Mboweni explained.

The cost of existing sovereign debt remains worryingly high, according to the minister. The single largest percentage increase in expenditure is the 10,7 percent jump in debt servicing costs that climbs to R202-biilion in 2019.

It is now projected total government debt will stabilise at 60 percent of GDP by 2023/24.

READ: Mboweni accepts Saftu memorandum

Plans are afoot to bolster efforts at the South African Revenue Service (Sars) to crack down on the illicit economy – specifically the illegal cigarette industry for which no levies or duties are paid.

“We are masters of our own destiny. Our determination to regain our fiscal prudence will form the basis of our economic recovery,” Mboweni said.

In a further measure to cut government’s liabilities, Mboweni announced the public sector wage bill will be slashed by R27-billion over the next three years. Senior civil servants will be allowed to take early retirement and overtime and bonus payments will also be curbed in the short to medium term. Measures predicted to shed the civil service of up to 30,000 posts.

Mboweni added that as “a gesture of goodwill” all members of Parliament and provincial legislatures as well as executives at public entities won’t be receiving a salary increase in 2019 – the first time in democratic history.

The finance minister plans to redirect all savings in the wage bill to infrastructure development in the coming years.

Education continues to receive the lion’s share of the budget at R386-billion and a further R111-billion will be made available for needy students to study at the country’s tertiary institutions and colleges. R2.8-billion will also be apportioned to the eradication of pit toilets in public schools.

The minister also reiterated Ramaphosa’s calls for changes to the existing immigration and VISA schemes to attract foreign skills to local shores – bucking the trend of rising xenophobia gaining momentum in South African politics.

“In many successful economies, immigrants have been a source of dynamism. Narrow nationalism often leads to stagnation,” he added.

Mboweni was candid about his belief that while the road ahead may be long and hard, faith and diligence by all South Africans will see the country through prevailing hard times.

Quoting the bible three times in his speech, Mboweni ended with Psalm 23:

“Even though I walk through the darkest valley, I will fear no evil, for you are with me; your rod and your staff they comfort me.”

- Nickolaus Bauer

Source
eNCA