Has The Supplementary Budget Betrayed The Promise Of A R 500 Billion Stimulus Package?

Introduction

Not surprisingly, a debate has emerged about the economic policy government should adopt in the light of the COVID-19 epidemic. One contribution has been a Daily Maverick piece by Neil Coleman[1]. He and the sources he cites are highly critical of current fiscal policy. The Economists Initiative, a group of 122 economists and policy experts, has taken the extraordinary step of calling for Parliament to reject the supplementary budget and send it back for reformulation.It is unlikely to happen, especially since Parliament approved the revised fiscal framework on 8 July. It still has to pass the adjusted appropriation bill and the division of revenue bill, which give legal effect to the supplementary budget.

Nevertheless, the struggle will continue. So the question arises: How solid are Coleman’s arguments?

The HSF has already published two briefs relevant to the issue:

• Decision making in a time of uncertainty - 11 June 2020
• The adjustment budget and beyond - 30 June 2020

This brief should be regarded as a third in the series. More will be forthcoming in due course.

Coleman makes the charge in his piece that there are massive discrepancies between the April package and the supplementary budget. This brief will examine that claim.

The fiscal aspects of the stimulus package

It should be noted that not all of the stimulus package is to be financed through the main budget. Table 1 sets out the components of the

stimulus package and their financing.

Table 1

Source: National Treasury, Briefing by National Treasury on financial implications of COVID-19 on both the economy and budget, presented to the JT Standing Committee and Select Committee on Finance and Appropriations, 30 April 2020: Slides 31, 32 and 34.

Note: The R 200 million will come from the banks. Losses for which the government is responsible take the form of contingent liabilities, and do not have any impact on the main budget unless they are realized. The R 60 million from social security funds impact the consolidated, but not the main budget.

That was the deal, and now one turns to the supplementary budget documentation to see whether it has been honoured. Table 2 sets out the supplementary budget commitments:

Table 2

Source: National Treasury, Supplementary Budget Review 2020, Tables 2.1 and 2.2

When comparing Tables 1 and 2, it is important to bear in mind the distinction between changing entitlements in respect of the various components of the COVID-19 package and changes in the estimate of the cost of those entitlements. For instance, the supplementary budget has not changed the entitlements in the support to vulnerable households, but it has revised the estimate of their cost from R 50.0 billion to R 40.9 billion in light of new information not available in April. Likewise, it made provision for R 26.0 billion to cover revenue foregone from the income tax support in April and revised the estimate down in the supplementary budget to R 19.6 billion, without changing the rules[2]. On the other hand, the allocations to health and frontline services, and support to municipalities have increased, and there are new allocations to education, public entities and other interventions. Other interventions include support to South African National Parks and the Passenger Rail Agency of South Africa, to replace lost revenue and to prevent large job losses.

This leaves only the discrepancy between the R 100.0 billion promised for job creation and support for small and medium enterprises and informal businesses in April and the R 6.1 billion in the supplementary budget, to which Coleman drew attention. Is this a broken promise? The answer is no, or at least, not yet. The reason is that there will be a second supplementary budget accompanying the October Medium Term Budget Policy Statement and the supplementary budget review states explicitly that some interventions will be phased in through upcoming budget announcements, including the October 2020 MTBPS and the February 2021 budget review. Allocations to support the April promises are not yet complete, and judgment must be deferred until they are. What can be said is that there is an increase in non-interest spending of R 36 billion in the supplementary budget, which is added to the budget deficit. After allowing for the R 3 billion allocated to an increase in Land Bank equity, R33 billion supports changes in expenditure on the COVID-19 package.

There have been delays in some disbursements. Rollout of increases in the child support grant and tax relief programme has been rapid. The new social relief distress grant is taking longer to implement, not surprisingly since it has required the registration of well over ten million applicants. The loan guarantee scheme has disbursed more than R 10 billion, but much less than the R 200 billion promised. Amendments to improve access to the scheme are promised.

Conclusion

This brief has not attempted to deal with all the points that Coleman raised, but merely his claim that there are massive discrepancies between the April package and the June Budget. But an interpretation that would conclude that the government has defaulted on its promises is at best premature and, at worst, it will turn out to be wrong.

The issue of whether the government needs to do more to address both the COVID-19 epidemic and the recession which ran for nearly three quarters before the lockdown is a discussion for another brief, another day.

Charles Simkins
Head of Research
charles@hsf.org.za