CAPE TOWN - What does MTBPS mean for you? And why you should pay attention?
It is D day for Finance Minister Malusi Gigaba as he prepares to deliver his first medium-term budget policy statement (MTBPS).
What does this budget really mean to you and I?
Firstly this statement will allow us to see what government is planning for the next three years in terms of their fiscal agenda.
THREE BIG QUESTIONS
1. What economic growth do we expect?
2. How will the budget deficit effect tax payers?
3. What will be the expected tax revenue?
Many economists will look at how Gigaba will establish credibility and how will he develop trust and essentially ensure there is hope for the next three years.
Gigaba will therefore need to provide a clear plan on how he will grow the economy and address unemployment.
Ratings agencies like Moody’s Investors Service and Fitch Ratings will also be keeping a steadfast eye on the budget statement. For the most part these agencies like us want to see what direction Treasury will be taking in the next three years.
Presumably these agencies will remain silent and not change SA’s credit rating, unless Gigaba says something really shocking.
Look at the rand
For most South Africans having an understanding of how the rand will fluctuate today is very important. Minister Gigaba’s statement will undoubtedly affect the rand, our commodity markets and investor confidence. In the build-up to the statement the rand remained weak as investors refrained from making any large moves ahead of the budget speech. The rand traded at 13.7575 versus the dollar.
THE GUPTA TIES AND PIC
Gigaba was handed the finance ministry in March this year. He has been accused of state capture and has been linked to the notorious Gupta family on multiple occasions.
His involvement with the Public Investment Corporation (PIC) has also been heavily criticised.
Many argue that Gigaba has the ability to influence how PIC funds are divested and used. In September this year Gigaba was accused of potentially using pic funds to bail out the embattled national carrier SAA, to the tune of R3 billion.
BUT HOW WILL THIS AFFECT YOU?
The PIC is made up of a number of government pension funds. The PIC manages R1.928 trillion, “about 95% of which is on behalf of the Government Employees’ Pension Fund and the Unemployment Insurance Fund”.
If you are a government employee or your family is a government employees than this fund is probably where their retirement and Unemployment Insurance is located. Unions representing these employees were extremely concerned that there was a possibility these funds could be used for dubious reasons related to the Gupta family.
There were concerns that the family and representatives in government were trying to gain control of these funds. Another concern was that the PIC funds would be used to bail out failing state owned enterprises like SAA.
For number analysts this affectively means throwing billions of rands down the drain, if there were no measures to ensure the money used from the PIC was recouped.
WHAT YOU SHOULD BE LOOKING OUT FOR?
Here are some key areas you should be focusing on during budget speech
New taxes: Total tax revenue for 2016/2017 will be R1.14 trillion that is an increase on 7% based on the previous year.
It is estimated that Gigaba will ask for additional tax increases. The minister is under pressure to mitigate a budget shortfall of R40 billion to R60 billion.
Nazmeera Moola, economist and strategist at Investec Asset Management said, "Revenues are running well behind expectations and expenditures have not been curtailed from the Feburary budget at all, in fact we've seen a bit of extra expenditure come in the form of the transfer to SAA so I think the Finance Minister is in a difficult position."
In terms of small to medium businesses, Ben Bierman, managing director at Business Partners Limited said that Gigaba must emphasis the creation of a supportive business ecosystem and this can only happen through an increased budget allocation to the SME sector.
Bierman explains that although the local economy has received some good news over the past couple of months in the form of an interest rate cut, lowered inflation and a better than expected trade surplus, the country’s economic growth potential continues to be hampered by political noise and policy uncertainty.