CAPE TOWN – What measures will Finance Minister Tito Mboweni announce in his medium-term budget to restore fiscal discipline while balancing it with the needs of the poor?
This, among others, will be the question that will be answered when Mboweni tables his maiden Medium Term Budget Policy Statement, dubbed the mini-budget, in the National Assembly, this afternoon.
Mboweni, along with the top finance officials – SA Revenue Service acting Commissioner Mark Kingston, National Treasury Director General Dondo Magajane and Reserve Bank Governor Lesetja Kganyago – will walk up to the National Assembly carrying the symbolic national purse to deliver his medium term budget speech shortly after lunch.
Some analysts have already expressed a sense of optimism that Mboweni, who is a former Reserve Bank Governor and a respected economist, will restore fiscal discipline and bring confidence in the public finances.
Mboweni’s tough balancing act, some have said, will bode well with ratings agencies, while keeping him on the good books of labour unions.
Over the weekend, the minister reportedly expressed a concern that the public sector wage bill was high and that interventions were required to curb spending on salaries.
What economists expect from MTBPS
FNB Chief Economist, Mamello Matikinca, said the bank foresees several key risks to government’s expenditure profile.
Matikinca said the public service compensation budget will likely grow by more than the initially expected average of 7.3 percent over the medium term.
According to the Department of Public Service and Administration, the 2018 wage agreement between government and workers exceeded the R110 billion envisioned in the MTEF by R30bn.
“We believe that the 2018 MTBPS will stick to the script ushered in by the 2018 Budget Review, and provide little in the way of surprises. What will be interesting is to see from which [underperforming] departments further expenditure cuts will come.
“We see little chance of any negative ratings action from Moody’s post-MTBPS as some fiscal slippage is already baked into their assumptions, giving us a little more time to right the ship.”
Old Mutual Investment Group’s head of Economic Research, Johann Els, said the numbers for the current fiscal year are actually looking better than feared given the recession.
“Revenue is running ahead of target and spending is actually below target,” he said.
The most important issues for government to focus on will be to get economic growth going and to stabilise state-owned enterprises.
“These steps would go a long way towards putting fiscal policy on a healthier path.
“We are looking forward to faster policy adjustments after the elections next year as these could help to create an environment where consumer and business confidence are markedly lifted. This should be a significant start to a stronger foundation for higher economic growth.
“Once the SA economy starts on a stronger footing, the President’s investment plan will also get some traction and growth in the region of 3 to 4 percent from 2021 onwards could become a real possibility.”
South Africa’s economy is largely driven by high production sectors like mining and agriculture.
The agricultural sector, which has in recent months been hit by the worst drought in years, has high hopes that the medium term budget will respond to the challenges the sector faces as a result of the effects of climate change.
Dr Requier Wait, Agri SA’s head for economics and trade, said Agri SA was able to leverage R18 million in value for drought support from various private donations, and given the impact of drought on economic activity and job creation, it stands to reason that government should also get involved and contribute directly.
On moderating taxes, Wait said personal income taxes are reaching a point where higher tax rates will start showing decreasing returns in tax revenue.
He said increasing value-added tax (VAT) would be unpalatable in a slowing economy where consumers’ budgets are stretched thin.
In the context of South Africa’s investment drive, Wait said, higher company tax rates could deter much needed foreign direct investment (FDI).
He called for a relook into excise taxes.
“Rapidly escalating excise taxes on tobacco and alcohol have already created a shadow economy for illicit goods, that impact on producers directly.
“A relook at excise tax increases, as well as guaranteeing consistent enforcement of excise duties is especially necessary for local cigarette producers,” he said.
Professor Raymond Parsons, of the North West University Business School, said the MTBPS came on the eve of the key Investment Summit later this week.
He said the “message” of the 2018 MTBPS will be a valuable curtain-raiser to the summit's agenda.
“It makes it easier to answer some of the probing questions which existing and potential investors are likely to ask in wanting to reduce policy uncertainty and inconsistency. The MTBPS can therefore assist in laying better foundations on which to build investor confidence.”
Parsons said there were nonetheless tough decisions to be taken in the MTBPS in order to continue to promote fiscal consolidation and economic growth, yet against a weak economic background.
“The President's stimulus package also needs to be concretised in this MTBPS.
“There needs to be a strong 'message' coming through to the financial markets and credit rating agencies that, although there are no instant solutions, there is visible evidence that SA's public finances are gradually coming under control and that higher growth is possible.
“The 'work-in-progress' of steadily winding down public debt needs to be tangible and irreversible in the MTBPS.”
He said the new Finance Minister brings integrity, a skills set and experience to his new role.
“His economic leadership has the potential to build confidence in the economy of SA as a whole, whether in business, labour or among consumers.
“His appointment was generally well-received. The MTBPS will therefore be the first major test of his economic steersmanship at the National Treasury,” said Parsons.