Expect bad news in Mboweni’s mid-term budget, warns expert

The recent fuel price drop that was favoured by the rand’s good performance against the US dollar could be undermined by a tax increase, likely to come from Finance Minister Tito Mboweni’s mid-term budget, and the possibility that ratings agency Moody’s could downgrade South Africa to junk status next month.

Economists are bearish about the economic situation. They said they were bothered that consumers were already struggling to keep their heads above the water due to high debt.

Efficient Group chief economist Dawie Roodt believed a major threat to the price reduction remained Moody’s likelihood to follow the other two ratings agencies to downgrade South Africa’s sovereign credit rating to sub-investment grade (junk).

“Because of abysmally low growth figures in this country, coupled to record high unemployment numbers, the fiscus is in deep trouble. Debts owed by state-owned enterprises amount to around half a trillion rand. With the rand remaining under pressure and Sars’ [South African Revenue Service] inability to collect sufficient taxes to cover the government’s growing fiscal deficit, there is a very real possibility that the minister may decide to raise taxes in his upcoming mid-term budget,” Roodt said.

He predicted a rise in personal income tax and possibly even a hike in VAT, depending on how serious Mboweni believed the current crisis was. He is due to table the medium-term budget on Wednesday. Mboweni’s predecessor, Malusi Gigaba, increased VAT from 14% to 15% with effect from April 1, 2018. The move was criticised by trade unions and civil society because it hit the poor more.

Other observers were more optimistic, believing Mboweni wouldn’t risk another VAT increase and further strain his already sour relations with leftists within the ANC-led tripartite alliance. Roodt pointed to power utility Eskom as a burden to the country’s economy due to its precarious financial situation.

“One of my biggest fears is that Eskom is technically bankrupt because its income from electricity sales is not covering its operating costs – especially from its vastly bloated workforce. All attempts to reduce its workers have been met with stern opposition from unions,” Roodt said.

Consumer economist and Debt Rescue counselling firm chief executive Neil Roets was worried about the plight of consumers. He cautioned that indebted people should not see the reduction in the fuel price as an excuse to relax their purse strings.

“The economy is under serious pressure and things may get a lot worse before they get better. “Even the middle class, who have traditionally managed to avoid most of the financial pain, are under severe pressure,” Roets said.

“Most consumers have already cut out luxuries. “About the only advice I have left is to avoid unnecessary debt. Forget about buying a new car – look around for a good used car instead. Now is not the time to upgrade your house unless there are valid reasons, like a growing family,” said Roets.

Meanwhile, the Congress of South African Trade Unions (Cosatu) warned Mboweni against continuing with his “anti-worker” public posture. Its parliamentary coordinator, Matthew Parks, said the economy had been experiencing the worst downturn since 1994, with about 40% of workers unemployed. He said Cosatu expected the minister to tell the nation exactly what government had done, was doing and would do to take the country out of crisis.

“The incoherence and timidness we saw in the February 2019 budget speech and the 2018 [medium-term budget policy statement] will not do,” he said.

– ericn@citizen.co.za

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