Tito’s challenging budget speech

Finance Minister Tito Mboweni has the immense task of getting SA’s economy from its low growth trap without falling into another debt trap while avoiding a recession or another junk status rating when he delivers his budget this week.

Mboweni is expected to table what economists have described as a challenging 2020 budget speech before parliament on Wednesday.

But the minister has a tough task of identifying which expenditures to cut to ensure economic growth, economists have said.

A fiscal plan was urgently needed to strengthen policy and boost investor confidence, economist and professor at the North-West University’s school of business and governance Raymond Parsons said.

Mboweni should commit to implementing national treasury’s growth strategy. It was released in August last year.

“Investor confidence can be boosted by offering tangible evidence of efforts to stabilise the finances of key state-owned enterprises like Eskom and South African Airways and an end to government bailouts.”

But Mboweni might not get support should he decide to scrap the public sector wage bill, chief economist at PricewaterhouseCoopers Lullu Krugel said.

“This could be a very unpopular decision,” said Krugel.

GDP growth

This year would mark the sixth consecutive year that the country’s gross domestic product (GDP) declines due to population growth and fewer people contributing to income tax.

PriceWaterhouseCoopers and Intellidex predict a 0.6% growth, unlike the 1.7% predicted in 2019’s budget speech or the 1.2% forecasted in the mid-term budget policy statement and by the SA Reserve Bank.

This figure could have worsened had the country faced continual 18 months of stage 2 load shedding, head of Capital Markets Research at Intellidex, Peter Attard Montalto said.

“Growth this calendar year could well be -1.5% rather than 0.6% if this were to be the case. While growth next year could be higher at around 2.4% given the negative base, it would still be negative on the fiscus given the smaller revenue base,” Montalto said.

VAT increase

A VAT hike could be expected at the budget speech to support the R35 billion additional tax revenue that is aimed to be raised this year.

“Quite frankly, they don’t have any option but to increase VAT because they can’t raise those revenues from increases of other tax instruments,” head of tax policy at PricewaterhouseCoopers Kyle Mandy said.

According to Absa, VAT could go up by a percentage point to 16%.

This could affect the buying power of consumers and their ability to save, Mandy said.

Sin tax

The price of liquor and cigarettes are, as usual, expected to go up, particularly the fuel levy to try and aid the deficit of the Road Accident Fund, Montalto said.

“We then see sin tax hikes being larger than usual – especially for fuel duty to plug the yawning deficit in the Road Accident Fund.

We already factor this into our consumer price index forecast to some degree.”

Unemployment

The unemployment rate has remained unchanged at 29.1% during the fourth quarter of 2019, Statistics South Africa said.

The country now has the fourth-highest unemployment rate in the world despite 117,000 formal sector jobs.

But not much was expected to change this year, said chief economist Bonke Dumisa.

He said Mboweni might encourage public servants to take early retirement packages similar to Eskom’s proposed voluntary retrenchment of 16,000 workers.

– rorisangk@citizen.co.za

For more news your way, download The Citizen’s app for iOS and Android.