Gordhan’s 2016 Budget speech reviewed

‘The rand said it all’ – David Shapiro, Sasfin

HANNA ZIADY: Finance Minister Pravin Gordhan’s 2016 budget speech remains under the spotlight. This as reaction continues following what has been termed the toughest speech yet amid South Africa’s economic woes.

Tumisang Ndlovu reports.

TUMISANG NDLOVU: Some analysts say Finance Minister Pravin Gordhan’s 2016 budget speech disappointed investors looking for bolder action to avoid a credit rating downgrade to junk status. Chris Gilmour of Barclays Africa Group adds his views.

CHRIS GILMOUR: It’s all relatively good news. My one concern is that perhaps it didn’t go far enough to placate the concerns of the ratings agencies. Some people would say it was bordering on the dull.

TUMISANG NDLOVU: In tabling the Budget in parliament yesterday Gordhan announced cost-cutting measures and stuck to a pledge to bring down the budget deficit.

PRAVIN GORDHAN: Against the background of slow growth, rising debt and higher interest rates, the pace of fiscal consolidation will be accelerated. The budget deficit will be reduced to 3.2%. We cannot spend money we do not have. We cannot borrow beyond our ability to repay. So we are resolved to restore the momentum of growth and to preserve our economy’s investment grade state.

TUMISANG NDLOVU: Investment Solution’s economist Rob price has expressed little optimism.

ROB PRICE: We saw the reaction first and foremost in the rand and it’s clearly quite negative, and that speaks volumes. In order to avert that trajectory towards junk status, you needed a really shocking budget on the positive side. There was much talk about the minister having a lot of political capital this time round, which he might not have in budgets to come if growth deteriorates any further from here. And there wasn’t much of a shock factor on that front in terms of privatisation, which is what some of the investors would like to have seen.

TUMISANG NDLOVU: Meanwhile Seriti Asset Management’s Carmen Mpelwane says it’s now up to government to ensure implementation of the strict measure announced by Gordhan including a R25bn government expenditure cut.

CARMEN MPELWANE: As much as it’s a good thing and good news, my focus would be on what exactly they are going to pinpoint on, and what is the transparency going to be to the South African population in terms of that.

TUMISANG NDLOVU: The minister also announced several tax adjustments, including the usual increase in the sin tax and fuel levy as well as a new tax on sugar-laden drinks and a tyre levy. On this matter founder of Priority Tax Solutions Zweli Mabhoza says Gordhan stopped short on clarifying some pronouncements in this regard.

ZWELI MABHOZA: We do not know when people are going to be disposing of the capital assets that they have, which is going to trigger the capital gains tax that we see there. We don’t know to what extent people are going to be actually converting capital gains tax into dividend tax because dividend tax has not gone up.

TUMISANG NDLOVU: Following Gordhan’s address, the rand fell the most in five weeks.


HANNA ZIADY: We are in the closing minutes of the show but, David, we are going to touch briefly on the Budget. As I said, S&P, Standard & Poor’s, said today the budget lacks significant policy announcements that could immediately spur GDP growth or provide much-needed business confidence to the private sector. But despite it saying that, the ratings agency also announced that South Africa’s credit rating will not be immediately affected by the budget.

DAVID SHAPIRO: Immediately affected, But the focus is on growth, and I think this is where the disappointment came. I think we were expecting a lot more to happen on initiating growth, getting businessmen to start investing again, and help this economy create jobs. And there was nothing there. Everything was a little too nice.

HANNA ZIADY: Trying to accommodate everyone.

DAVID SHAPIRO: Everybody. This minister to that minister, patronising to each minister. We need somebody hard to come in there and beat their heads and cut costs and get rid of costs. I’m not sure you can do it with the same management team in place. You need a new management team who is going to come and, say, as we see in business, cut out all the excesses that have been built up there. “Oh no, you can’t travel business class any more” – you can’t do it that way.

HANNA ZIADY: We don’t only need cutting on luxuries. Some positive movement on state-owned entities, though.

DAVID SHAPIRO: Hanna, the rand said it all. As Pravin Gordhan started to speak, R15.15 to R15.70/dollar – that’s a massive 3% decline, which said, oh, oh, things are not turning out the way we thought they would.

HANNA ZIADY: And the rand this evening is at R15.63/dollar.


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