Highlights of South Africa's 2019 Annual Budget

(Bloomberg) -- Below are the highlights of South Africa’s 2019 annual budget released by Finance Minister Tito Mboweni in Cape Town on Wednesday.

• Government gives power utility Eskom a record bailout, on condition it cuts costs
  • 23 billion rand a year for three years to cover debt-service costs and meet redemptions
  • First step in restructuring is a new transmission company, with independent board by mid-2019 - assets to include grid, substations, control center, and peak-power plants
  • Eskom must cut costs of 20 billion rand a year by 2022, excluding reduction in the wage bill
  • Government plans to sell off a stake in the new transmission company
• “I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it,” Mboweni says
• Budget deficit widens because of Eskom and as revenue falls short
  • Consolidated deficit is seen at 4.5% of GDP in 2019-20. That’s up from 4.2% forecast in the October mid-term statement
  • The shortfall comes down to 4% in two years
  • It’s also higher for the current fiscal year (until end-March) at 4.2% compared with the previous projection of 4%
  • Tax collection is 15.4 billion rand less than expected in October forecast
• Personal income-tax brackets are not adjusted for inflation, with the bracket creep bringing in an extra 12.8 billion rand
• No change in corporate tax rate and VAT
• Debt ratio averages about 0.5 percentage point higher, pushing through the 60%-to-GDP mark
  • Gross debt is predicted to peak 60.2% of GDP in 2023-24 compared with the 59.6% given in October
• The spending ceiling is intact this year but breached after that, mainly because of Eskom
  • It’s raised by 14 billion rand in the coming fiscal year, and 1.3 billion rand and 732 million rand the next two respectively
  • The increases are due to the money for Eskom, a new infrastructure fund and a census in 2021
• Budgeted spending on state-worker wages falls as the government offers early-retirement options
• The government wants to change how it supports state companies
  • Considers ending guarantees for operational purposes and a chief reorganization officer will be appointed whenever the state gives a guarantee
  • Equity partners will be found where possible
  • The contingency reserve in the budget is raised to cover requests for money to ensure support is budget-neutral

To contact the reporter on this story: Gordon Bell in Johannesburg at gbell16@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Rene Vollgraaff, Ana Monteiro

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