‘Tough love’ for state-owned enterprises, as Godongwana halts additional funding for struggling SOEs

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The government says there will be no additional funding for struggling state-owned enterprises (SOEs).

In his Mid-term Budget Policy Statement, Finance Minister Enoch Godongwana says they have proposed to maintain restraint in public expenditure.

The government will not be committing to new long-term spending in response to temporary revenue windfalls and no additional funding will be provided to state-owned companies.

Godongwana says he is giving SOEs tough love and their days for getting bailouts are over.

“Many SOEs have been badly damaged and have failed to deliver, in many instances they have been devastated by State Capture making them increasingly reliant on government support. Since 2013, government directed more than R289 billion to bail out state-owned entities at the expense of important social expenditure. In this MTBPS no additional funding is provided,” says Godongwana.

Godongwana says the recent spike in commodity prices which supported GDP growth and tax revenue is temporary.

2021 Mid-Term Budget Policy Statement

He says the country will need long-term structural constrains due to scarring from the effects of the COVID-19.

Treasury has also indicated that the country’s growth outlook remains grim and fiscal risks have increased.

According to the Mid-Term Budget Policy Statement, South Africa’s economy grew faster than expected in the first half of this year, but the momentum is expected to taper off due to public violence witnessed in July.

Government also says disruption of ports and rails and the third wave of COVID-19 infections could have a negative impact on economic growth prospects.

Treasury expects real GDP to grow by 5.1% in 2021.

Output is expected to return to pre-COVID levels in 2022, a year earlier than estimated in February budget.

MTBPS 2021 I The fine balancing act between social spending and other needs

Government says it will use part of the higher tax revenue collected associated with the commodity price boom to narrow its deficit. It will also use the money to further provide short-term relief to venerable households and cover the higher costs of the public-service wage.

Higher-than expected revenue collection has enabled government to respond with a fiscal package of R37.9 billion in 2021/22.

Government says in line with its commitments to support vulnerable households impacted by COVID-19, additional resources for social protection will be considered. However this will only be done if the fiscal situation improves by February 2022.

It has proposed the reintroduction of the temporary R350 special COVID-19 social relief grant be extended until the end of March 2022. It also proposes the grant be extended to include caregivers who receive the child support grant.

MTBPS 2021 I Expectations around tax and revenue collection ahead of mid-term budget