Medium-term budget in a nutshell: It’s going to hurt

Treasury has been forced to make painful revisions to the latest Medium-Term Budget Policy Statement, which updates government’s spending plans over the next three years, after its expectations in the February Budget turned out to be over-optimistic. Government now expects to earn almost R57-billion less in taxes than it previously forecast. Much lower commodity prices (due in part to a Chinese demand) hit mining profits, while loadshedding, Transnet’s woes and weak local growth also weighed on other tax income. Treasury also didn’t fully budget for a 7.5% public sector wage hike, which has added billions to government spending this year. Some 55 000 civil servants now earn more than R1-million a year. Concerns about South Africa’s economic and fiscal outlook – along with its greylisting, its controversial relationship with Russia and much higher interest rates across the world – have pushed higher the cost of government borrowing. Investors are now demanding much higher interest rates from SA: government’s weighted cost of borrowing has increased from 8.3% in February to 9.5% in October. This has increased debt service costs by R52-billion above the budgeted amount. Out of every R5 collected in tax, R1 is now being paid to lenders. Government is now spending more on paying debt that on basic education or on health. Debt-services costs are expected to grow by almost 9% per year. Government debt is now expected to peak at almost 78% of GDP – from a previous forecast of 73% – by 2025/26 – much higher than in most emerging markets.