HILARY JOFFE: A bold budget that now has political rapids to negotiate

28 February 2021 - 05:06 By HILARY JOFFE

Speaking to journalists after Wednesday's budget, governor No 10 - as finance minister Tito Mboweni likes to call current Reserve Bank governor Lesetja Kganyago - congratulated governor No 8 on a "bold" budget. And in many ways it was. It provided three crucial signals. Yet it is subject to at least three key risks. The first signal was, simply, the vaccine. There can be no more economically potent way of spending taxpayers' money than to fund a mass vaccine rollout. And after all the ludicrous talk about having no money to pay for it, Mboweni made it clear the government will fund it straight out of the budget, and made available up to R19bn to cover this.

The second signal was that the budget largely saved, rather than spent, its R99bn revenue "windfall". This is how much more it now expects to collect for the current fiscal year, compared to its bleaker numbers in October's medium-term budget. And though it still leaves a massive revenue shortfall, the relative overrun enabled Mboweni to reduce the deficit and trim the government's enormous borrowing requirement - with hardly more than a third used to pay for Covid-related spending (including on the vaccine), which Treasury officials emphasised was a short-term and not a structural (long-term) addition to spending. Lower borrowing not only means a lower debt ratio in years to come but should also help to narrow the high interest rates the government is paying on its debt. This was the signal the financial economy was closely watching: whether Mboweni would stick to the fiscal consolidation plan to cut spending and stabilise soaring debt over the next four years. And he did...

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