CAPE TOWN – The newly appointed finance minister, Tito Mboweni is set to announce his maiden Medium-term Budget Policy Statement (MTBPS) on Wednesday 24 of October.
Peter Worthington, macroeconomic research at Absa CIB believes that the finance minister had not had sufficient time to stamp his mark on fiscal policy.
"Treasury has very little room to manoeuvre against a backdrop of weak growth and political constraints on necessary fiscal and structural reforms," Worthington told Business Report on Tuesday. "Given that both inflation and real gross domestic product (GDP) growth are likely to undershoot the 2018 Budget assumptions, tax collections could also disappoint, unless tax buoyancy proves more robust than the Treasury initially expected."
According to Worthington, so far in the 2018/19 financial year, tax collections were ahead of target, so even if the pace of collections faltered somewhat in the second half of the year, any slippage would be relatively minor.
"We expect slippage of 0.2 percent of GDP on the main budget balance," said Worthington.
Worthington added that the MTBPS will likely report that overall expenditure growth remains contained, with the current run rate of 6.8 percent year on year below the Budget forecast of 7.7 percent year on year.
"However, there is pressure for more spending; for example, to bail out state-owned companies. Markets will be alert to any sign of the hitherto sacrosanct expenditure ceilings being revised upwards."
He said that there would be updated projections for public sector employee compensation, particularly since the three-year wage agreement was slightly in excess of the 2018 Budget targets.
"The government has promised no mass retrenchments, so it will be interesting to see if the MTBPS reveals a strategy for curbing public sector pay through other means."
Worthington makes note that Investors will also be watching the 2018 MTBPS for more details on the R50bn reallocation of existing expenditure as part of President Ramaphosa’s stimulus plan that was unveiled in September.
"It is unclear if the MTBPS will detail a set of plans for dealing with the plethora of bailout requests from state-owned companies, such as SAA. We think if the government wants to send a bold and confidence-boosting signal to the market, it could conceivably surprise with an announcement to put SAA into business rescue, but this is not our base case scenario," said Worthington.
"The MTBPS might also provide the government’s decision with regard to the recommendations of the Woolard panel that the list of items zero-rated for VAT be expanded at a cost of R4bn as a means of poverty alleviation. However, any implementation is unlikely to come until the 2019 Budget," said Worthington.