You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

#Budget2019: 4 things to watch

Biggest short-term challenge is Eskom.

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.

This is the challenge finance minister Tito Mboweni has been confronted with as he prepares to deliver his maiden budget speech to the nation on Wednesday at 2pm.

With an election around the corner and the country clinging to its last investment grade rating while economic growth continues to disappoint, the stakes are high. 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.

Here are four things that will be closely watched:

1. 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.

In his reply to the debate on his state of the nation address, president Cyril Ramaphosa – while stressing the need to separate Eskom into three different entities – tried to pacify labour partners and said Eskom would not be privatised, and that forced retrenchments were not on the cards.

Read: Eskom needs at least R200bn from government – Busa

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?

An announcement on Friday that SAA will pay its rival Comair R1.1 billion to settle a protracted dispute about anti-competitive behaviour has also raised questions around how this will be financed. SAA said on Monday that it was making headway with its turnaround plans. It is redesigning its organisational structure into three business units focusing on international, domestic and regional operations respectively, and needs a liquidity injection of R4 billion in the 2019/20 financial year.

There will be pressure on the minister to provide a credible plan for state-owned enterprises within a very tight fiscal framework.

2. Economic growth

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.

3. 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?

In a research note sent to clients on Monday, RMB Global Markets said that if the year-to-date spending trend was extrapolated, expenditure could be revised lower by R43 billion for 2018/19. RMB says this would be enough to curtail the shortfall in tax revenue and provide “wiggle room to potentially provide Eskom with a cash injection of about R10 billion [to] R15 billion”.  

Others are less optimistic. PwC expects the budget deficit to widen from a projected 4% of GDP in 2018/19 to 4.3%. This projection assumes that expenditure will catch up to Treasury’s previous forecasts.

Another key figure to watch is South Africa’s gross-debt-to-GDP ratio. The mini-budget projection was that it would stabilise just south of 60% in 2023/24.

4. Tax changes

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).

Below-inflation increases in the medical tax credit may also provide a few drops of tax income.

The recent fuel price reprieve may however be short-lived. The mini-budget already signalled that the Road Accident Fund would require further large increases to the fuel levy.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   24

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

The 2019 budget will be the ANC’s election budget, paid for by your tax.

Its primary objective is to ensure that the ANC garners sufficient votes in May to remain firmly in power.

But people like Peter “air guitar” Bruce and chorus girl Melanie Verwoerd will speak in tongues about the “long game”.

The budget speech will not as bad as people are making it out to be.

Who better than Cyril Ramaphosa, Tito Mboweni and Pravin Gordhan to sort out the mess created by the previous administration over a period of 9 years?

I speak under correction, I read one article where the budget shortfall be just over R10 Billion, which is actually good news compared to the previous R50 Billion.

Hang on, those three cadres were involved in the lead up to the mess we are in. Forget not that CR has taken up Zuma’s court case so that he would not need to justify his cabinet changes and that he looked on for 9 years while this train wreck was happening. My expectations for this president is very low, but as low as my expectations for Pravin who spent quite a few years as finance minister bailing out SOE’s without questioning why it was necessary.

Jip, its going to be an interesting Budget Speech this year. I still think the Debt-to-GDP ratio will be critical and give us a good understanding of our current fiscal situation. Let’s hope Minister Tito Mboweni can keep it at a manageable level.

Tito should introduce a special tax on all SoE’s its staff and all ANC political employees from president downwards.
Call the tax “pay back the money tax” – can be set at 5% of gross monthly salary and is recoverable until 2060 or beyond in need. If an employee resigns then funds to be taken from their pension funds – thus no escaping culpability

Special tax on SOE’s? And they’re going to pay it using what …?

How will you retain good staff members and how ilol you get the much needed injection of talent into the SoE’s? I understand your sentiment but this is not the solution.

No growth, hostile unions, SOE chaos, super high taxes and nothing in return, rich and clever people escaping the mayhem , crime, corruption exposed on an unheard of scale. Poor Tito-prescribed assets is probably the last place left to steal so put 15% of Pension fund money into “reconstruction and reparation bonds” for SOEs…and watch the currency and credit rating agencies!

No space to move…

There is space to move , its called Australia !

Yes, if you like global warming, falling house prices and a slowing Chinese economy – Far better places to emigrate to.

Australia has a small population, 25 million.

Far away from everyone, heard years ago that Ford and Toyota were relocating.

Gemini ….falling house prices for new immigrants. Sounds positive

Global warming ….conjecture. Greenland 1000 years ago had agriculture

Chinese economy slowing. Is that not part of the curve. Surely you did not believe China would infinitely grow at 10%

The Far East, which encompasses Australasia owns the 21 century

please not Aus

Yes Tim, 50 degree heat wave in Aus – Hottest year ever on record – All made up… Falling house prices – O yes that’s a positive! Did I say China can keep growing at a record??? Nope but the Australian economy was one of the major beneficiaries of that growth.

Wow. I didn’t know the entire continent was 50 degrees here. 🙂

Yes, it’s that hot in the central arid regions but a bad day for Brisbane is 35 to 38.

And by that logic of gross generalisation then, so how’s that civil war in Sudan? You must be terrified they’re going to come over to get you??? Ebola in North West Africa??? Oh my goodness – you’re so close to it??? :p

But look, if it makes you feel better then by all means keeping going on how:
– Oz is terrible but people here get upset because Queensland’s unemployment rate is too high at 6.1% and interest rates are less than 4%/
– it’s hotter than the sun and everything is going to die of thirst even though major desalinisation plants have already been built e.g. the Gold Coast Desalinisation plant/
– it’s going bankrupt even though the 2019/20 budget will go into surplus and net debt to GDP is 18.6%/
– everything/one wants to kill you even though the homicide rate is 1.8 per 100,000 people/
– so you have to watch out for the dropbears so much so you can’t walk outside alone at night as they need to get that homicide rate up/
– people here get upset with you if you say you have a “geezer” inside your roof…

Sure, there are problems here and things that aren’t right but be wary of throwing stones from your glass house.

I emigrated to Brisbane two years ago and was repeatedly told how foolish I was because, never mind that I was a “land veraaier”, the Brisbane economy was “so poor and resource reliant compared to Sydney to Melbourne” and I wouldn’t find work.

Sure, those economies two are stronger and bigger with higher salaries but I have had so much more opportunity here that it makes Jo’burgs job market look anaemic. No “Sorry, no White males” shoved in my face but you do have to work hard and prove yourself repeatedly as your qualification isn’t automatically held in as high a regard as SA workplaces do.

That apocalyptic slowdown for resources? It already hit hard years ago and although it will inevitably have its downturn down again with negative implications the economy and job market will survive as it’s not all just farming sheep, selling property and digging up coal here.

I’d also be wary of what you wish for as South Africa and Australia share the same commodity cycle. China’s slowdown affects SA commodity exports too.

I was worried about stricter prescribed assets (let’s remember, we have presribed assets already (Reg28), albeit a “lite” version). But the company I work for is very conservative. And the principle officer of our fund has already said, if it comes – we close the fund.

I suspect this will happen in droves (apart from GEPF) so, not a lot to target then.

Really Walker – Maybe take a basic reading test – Did I say SA is better than AUS? No! I said there are better options if you want to emigrate – If you are so over the moon that you emigrated what are you doing on this site – Just making sure about your decision?

Moved to Aus 4 years ago, couldn’t be happier. It was great timing, even if I say so myself. I’ve seen nothing but destruction in SA since I’ve left. The reason why I’m on here (MW) I used to read it while in South Africa and now I still read it, I love my new country but I also love the memories of SA too, apart from that I look for events that would cause Rand weakness so that I might exploite some of SA’s manufacturing sector with SA imports to Aus. As for better immigration options other than Aus, I’m sure there are many great options, but let me tell you, this is bloody good one and the living is as good if not better than SA.

If the prediction is for Govt to make no adverse changes to Income Tax (especially Individuals tax tables), all that they do is to leave the brackets unchanged….so that annual salary-inflation adjustments will push you into a higher bracket.

It’s called “increased tax by stealth”.

So when do increases in fuel and sin taxes actually take effect after the budget speech???

Fuel tax….effect from 1 April usually.

(Govt could increase the Fuel Levy by a higher amount than expected, to cover budget shortfalls. Always an easy one. And SA has already seen R17/liter, so we’ll be rather “used” to that figure when a large jump in Fuel Levy is announced to bring it back to R17/liter or higher. Watch this space…)

I laugh that every year we all get so excited by the Budget and then the Regime that is meant to be governed by this budget simply plunders what it wants. Its like an alcoholic drawing up the “Days I won’t drink schedule for the year” and then promptly getting wasted. These gangsters simply tell a BS story to the world about how wonderful the next year’s finances will be, when in fact their recent leader couldn’t pronounce any number over 9. Basically the Budget is a joke and a farce

I have a dilemma, from an educated point of view i would like to listen to the budget but from the mental health side it nauseates me to listen to these Anc politicians sucking up to one another, lying and carrying on as if everything is hunky dorry- puts me in a negative frame of mind.
I think i’ll wait for the edited version.
Being one of the 4 million who pays tax for the 55+ million trash i know what’s coming!

Load All 24 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: