When you run out of money you have to stop spending. This is key to turning things around. To carry on spending and relying on credit will drive you deeper and deeper into a debt spiral where you just end up borrowing to pay the people you already owe.

This month’s Budget speech presented what is being called by many an ‘austerity budget’. The plan is to cut public sector wages over the next 3 years rather than drive up taxes on people who are all under financial strain themselves. ‘The plan is to cut public sector wages rather than drive up taxes’ So, no VAT increase as some expected. No big once-off tax. Rather we got slightly lower tax for individuals than expected. Companies didn’t get off with the same reductions but neither were the hikes as big as feared and there may be cuts to come.

THE AUSTERITY MEASURES

Government now plans to spend about R156.1 Billion less than they were planning. To do so, they will prepare to go to war with unions over increases and benefits. There is bound to be massive backlash as naturally many individuals will not want to help carry the weight of these cuts as their wages fall behind the curve of inflation etc. The re-negotiations are going to be rough.
It was pointed out that civil servants salaries had grown by 40% (in real terms) over the last 12 years but that there had been no real increase in work output by civil servants. It may be that 2020 is the year that the ANC and Cosatu finally go to war.

OTHER CUTS

Some areas will also bear more of the brunt of the planned budget spending cuts than others. While anti-corruption and enforcement departments will get more money and be empowered to try to recover stolen millions or billions, areas such as education and health will sadly see less investment in infrastructure. It is a case of having to steal from Peter to pay Paul to try recover the money from…AJ. At the Hawks and National Prosecuting Authority (NPA) another 800 investigators and 277 prosecutors will be appointed in months ahead.

The future looks to be very busy for many defense lawyers. It was reported that in 2019 over 200 (minor?) government officials were convicted of crimes relating to corruption according to the NPA. The Zondo Commission has been given another 12 months to continue its work.

SAVING ESKOM AND SAA

Trying to throw money at these ailing institutions is still part of the plan and though airline traffic as a whole is in the midst of the Carona virus issue plans are moving ahead to back the business rescue of SAA. Eskom will continue to get support as efforts are made to creep out of the Gupta years towards some sort of running concern. At the same time, there will be a chance for people and even cities to look elsewhere for power. In a rather realistic turn, the speech included projections of SARS not collecting enough funds from citizens as unemployment and low growth will continue for some time ahead. Government is going to have to borrow more to make up that shortfall meaning debt will stretch by another 10% of GDP over the next 3 years (scary).

STATE BANK AND SOVEREIGN WEALTH FUND

These two items got mentions but for the most part will be figured out in the future. Tito kind of handed off responsibility for the state bank to the Prudential Authority (eg. who are sitting with Post Bank’s application for a banking license) and possibly onto the sale of “spectrum”. Minister Mboweni said that the budget is not, in fact, an austerity budget but rather a “cleaning up our house” budget.

Reference: debtfreedigi.co.za/wp-content/uploads/2020/02/Debtfree-Magazine-February-2020-compressed.pdf