Mboweni tables R2.2 trillion budget, R300 billion less than last year

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Finance Minister Tito Mboweni has tabled a massive R2. 2 trillion budget for the year 2021. However, the budget is R300 billion less than last years’ budget which was tabled before the outbreak of the COVID-19 pandemic.

The tightening of the belt has been justified by the government’s need to reduce spending and reign in the spiraling debt and stabilize public finances while seeking to put the economy on a recovery path following the devastation by the coronavirus pandemic.

Unpacking Minister Mboweni’s speech:

Mboweni notes that the effects of COVID-19 have been far-reaching and will likely be long-lasting. This as economic output and employment are expected to return to pre-pandemic levels only in 2 years’ time.

The performance of various economic sectors is undermined by unreliable electricity supply and weak public investment.

The Minister did not announce any major new tax proposals as SABC’s Mbalenhle Mthethwa reports from parliament:

Cost of doing business

The government plans to turn around the economy include reducing the cost of doing business to encourage private sector investments to promote economic growth and job creation.

Mboweni says the composition of spending will shift from consumption to capital investment.

“Our R6.2 trillion spending envelope over the Medium-Term Expenditure Framework gives expression to the Economic Reconstruction and Recovery Plan. This is not an austerity Budget. Our fastest-growing area of spending is our investment in the future-capital payments.”

3.3% growth expected 

Government expects the economy to grow by 3.3% this year, from a contraction of 7.2% last year, with confidence and investments in the economy at low levels, government says it plans to make things better by removing structural constraints that obstruct growth.

The minister says in the short term, structural reforms to promote economic recovery will focus on speeding up the expansion of electricity generation, creating jobs, rolling out infrastructure and supporting manufacturing and beneficiation.

Risks to growth include new waves of infections and the associated disruptions to economic activity.

Mboweni says there is a threat of a debt spiral if urgent steps are not taken to stabilize government finances. Government debt now stands at 80% of GDP and it’s expected to increase to 82% of GDP next year.

Government-guaranteed debts of state-owned companies are also expected to grow and interest paid on debt also remains a concern. It’s hoped the mass COVID-19 vaccine rollout will help boost economic recovery.

Budget 2021 delivered by Minister of Finance Tito Mboweni:

Below is the 2021-2022 Budget Speech: