Simply Online obo AJ Johnston Attorneys Umhlanga Rocks, Durban: Supplementary Budget – The impact on property | Simply Online

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Simply Online obo AJ Johnston Attorneys Umhlanga Rocks, Durban: Supplementary Budget – The impact on property

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South Africa’s debt levels will surge during 2020 as the economy contracts by more than 7% in the face of the Covid-19 pandemic, said Finance Minister Tito Mboweni in his Supplementary Budget speech on 24 June. However, he vowed to avoid a sovereign debt crisis, which he warned was looming on the horizon.

“Cabinet has approved a budget with an eye to the future, closing the gap between revenue and ever-increasing expenditure,” Mboweni said.

“Our Herculean task is to close the mouth of the hippopotamus. It is eating our children’s inheritance. We need to stop it now.”


Background

Mboweni said the country’s fiscal framework has been virtually decimated by the Covid-19 pandemic and the associated lockdown.

"South Africa’s total consolidated Budget spending, including debt-service costs, will exceed R2 trillion for the first time ever in 2020/21, while revenue will slump to R1.12trn - R300 million below the R1.43trn forecast in February’s Budget. "

He said the consolidated Budget deficit would surge to R761.7 billion, or 15.7% of GDP in 2020/21 - a sharp deterioration from the R370.5bn, or 6.8% of GDP provided in February. The main Budget deficit is projected to be 14.6% of GDP.

“Our early projection is that gross national debt will be close to R4trn, or 81.8% of GDP, by the end of this fiscal year. This is compared to an estimate of R3.56trn, or 65.6% of GDP, projected in February.”

Mboweni said that public funds are dangerously overstretched, and he warned of a looming sovereign debt crisis if urgent steps are not taken immediately.

“Patience and focus are required for South Africa to go on a sustainable path,” said Mboweni.


Measures

One of the steps he outlined is that South Africa is to switch to zero-based budgeting from July. In this method, which is widely practised by organisations world wide, all expenses must be justified for each new period. The process starts from a zero base, and budgets are built around what is needed for the upcoming period, rather than being based on budgets in the preceding period.

Allocations include: - The Land Bank is to be recapitalised to the tune of R20bn, and will be restructured to be strong and sustainable.

-  R100bn will be set aside for multi-year job creation projects.

-  R100bn will be allocated to infrastructure projects over a 10 year period. Mboweni said that 177 projects are

   already on the horizon.

-  R9bn is allocated to water and sanitation projects.

-  R5bn is earmarked for provincial education catch up plans.


Industry view

Dr Andrew Golding, chief executive of the Pam Golding Property group:

“The prioritisation of infrastructure development, including bridges, roads, railways and ports, is positive news, with 177 infrastructure projects already being considered across public and private sectors. The recent Sustainable Infrastructure Symposium for SA announced that there were already 55 “shovel-ready” infrastructure projects in the pipeline.

“This strategy, together with the re-energising of public-private partnerships, bodes well for increased confidence in our economy among local and foreign investors and the business sector, with broad spin-offs for job creation, industry, communities and ultimately, the property market.”


Gerhard Kotze, managing director of the RealNet estate agency group:

“From a real estate point of view there were four main positives - all related to saving jobs and creating new employment. This is the biggest challenge the country faces in repairing the economic damage done by the Covid-19 pandemic, and obviously vital for both the rental and sales sectors of the market.

“The first positive is that the Loan Guarantee Scheme for small businesses is up and running and has already advanced some R10m to help companies that lost money during the lockdown or that need help to restart.

“The second positive is the R100bn allocation over the medium-term for specific programmes to promote new employment. A total of R27.7bn has been found to support these initiatives in the current financial year.

“Third, government is determined to shift public sector spending away from consumption and into investment – and specifically R100bn of investment in better infrastructure.

“Fourth, the decision to recapitalise the Land Bank. The R3bn involved is a relatively small expense for the fiscus, but will save many farmers from going under – and in the process ensure continued food security for SA while saving many thousands of agricultural jobs.”


Berry Everitt, chief executive of the Chas Everitt International property group:

“There are indications that interest rates will be lowered again next month or in September, to stimulate household and business spending and boost economic activity. This will make it easier for home buyers and property investors to qualify for home loans. Home prices are also declining as expected, so the market over the next few months will present the best buying opportunities in more than a decade.

“The minister’s decision to move the country towards zero-based budgeting suggests a real determination to cut government expenditure and scrap non-essential projects, while focusing much-reduced resources on building up infrastructure and creating millions of new jobs so that we can increase our tax revenue and steadily reduce our national debt, while still supporting better education, health and security for everyone.

“We also support the immediate reallocation of funds to local authorities to provide better services, upgrading the living conditions of many residents, and the commitment to more sustainable energy options.”


The South African Institute of Black Property Practitioners (SAIBPP):

SAIBPP welcomes the commitment to infrastructure-led growth which echoes the recommendation made in SAIBPP’s 10-point plan to stimulate Economic Growth post COVID-19 published in April 2020. Infrastructure development and maintenance are key drivers of economic growth and significant job creators which will leave a positive legacy for generations to come.

However, this expenditure must be sure to close the socio-economic disparities that characterise South Africa by prioritising townships, rural areas and others that have previously been under-resourced. Housing development should also be prioritised.”


Looking to the future

The Supplementary Budget provides a roadmap to stabilise debt, through improving South Africa’s spending patterns and creating a foundation for economic revival. The Finance Minister stated that further details of the measures designed to implement the plan would be provided in the Medium Term Budget Policy statement later this year.


*Article sourced from Private Property*


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