At 2PM tomorrow, Tito Mboweni will deliver his first budget speech as finance minister.
I’m sure somebody says this every year, but he really is walking a tightrope, and any missteps could see the country knocked down another peg by those who control our investment grade rating.
Not to get y’all worried unnecessarily, but the world is watching, and Moneyweb makes no bones about what is required:
It will require the wisdom of King Solomon: finding immediate solutions to the country’s most pressing needs without lapsing into a downward fiscal spiral…
The decisions that need to be taken to ignite economic growth and stabilise South Africa’s finances in the long term will almost without exception be politically unpopular in the short term.
In an election year, that’s not ideal, which is why Mboweni is being watched so closely.
There are four areas in particular that people will be paying attention to:
Eskom (and SAA)
The power utility has been struggling to keep the lights on and its growing debt burden of over R400 billion has been a major point of concern. It seems likely that government will take on some of this debt; however, without a major overhaul, which would need to include restructuring the utility and cutting costs (read: reduce headcount), this may trigger a downgrade from Moody’s…
With the election looming, pushing ahead with significant structural reform immediately seems like a risky political move. But the question is whether merely offering a cash injection that would allow Eskom to service its interest payments will be enough to keep Moody’s on hold until after the election?
No prizes for guessing where Zapiro stands on the matter, as his cartoon on the Daily Maverick makes clear:
We all know SAA is an absolute disaster, too, although there may be some reason for optimism on that front.
South Africa’s low economic growth figures have hampered efforts to create jobs and address unemployment, but have also weighed on revenue collection – and mismanagement at the South African Revenue Service (SARS) has not helped.
The medium-term budget policy statement in October projected that growth would improve to 1.7% in 2019. Although likely accelerate from its 2018 lows, more recent forecasts suggest that growth could be somewhere between 1.3% and 1.5%. The question is whether National Treasury agrees, and how such a slowdown would impact its economic modelling for the next three years.
The budget deficit and debt numbers
While revenue collection growth in the fiscal year through December has not been as buoyant as Treasury expected in February (corporate and personal income tax collection have disappointed) expenditure growth has also lagged projections.
The question is: to what extent will the projections catch up during the remaining two months of the year, and what impact will this have on the projected budget deficit of 4% of GDP in 2018/19?
PricewaterhouseCoopers isn’t all that optimistic, and they say that the budget deficit could widen to 4,3%.
Finally, one that many everyday South Africans are looking at closely…
Government’s major sources of tax income – Vat, personal income tax and corporate income tax – are highly unlikely to be adjusted. At least as far as the actual rates are concerned.
Small changes are however expected, but these won’t raise significant additional taxes. While sin taxes (excise duties on tobacco and alcohol) usually rise more than inflation, concerns about illicit trade may move Treasury to limit increases this year. SARS only announced in August that it would re-establish its illicit economy unit.
Since perceived wealth taxes are likely to be more palatable, possible changes could include an increase in the capital gains tax inclusion rate and a change to the securities transfer tax (currently 0.25% on the transfer of shares).
Also mentioned in that breakdown is the fuel price, which looks set to rise, with the Road Accident Fund (RAF) requiring further large increases to the fuel levy.
The RAF has been run into the ground for years, with gross financial irregularities and dodgy tender practices the order of the day.
I guess the first step is for Tito Mboweni to say the right things tomorrow, and the second, and far more difficult step, is to trust that those in positions of power carry out his wishes with the best interests of the country at heart.
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