10X Investments takes on Mboweni's #Budget2019

Published Feb 21, 2019

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“The Budget Speech was in line with the expectations, which were very low and quite depressing.”

“If we look at numbers for the tax year end 2019, we saw that revenue grew by 7.5% which if you look at that relative to real GDP growth of 1.5%, it’s a very high rate of taxes - so the economy isn’t growing much but revenues are still ]growing at quite a high rate, which is actually not a good sign. It means that businesses and consumers are being taxed very highly in a low growth environment. Expenses grew by 7.9% which, if you look at inflation of around about 4.5%, is an incredibly poor outcome. So, to be growing our expenses at a faster rate than costs means that the budget deficit increased by 10.4% to R210bn for the year. So, we spent R210bn that we did not have, in 2018 we spent R190bn that we did not have and in 2017 we spent almost R160bn that we did not have. This is an incredibly concerning and disturbing trend.”

“If we look at the forecast for 2020, the forecast is for revenue to increase by almost 9% - personally I can’t see how that is going to happen. Why would we expect to collect substantially more revenue and a higher growth rate in an economic environment that remains very depressed? So that looks overly optimistic and Treasury has a history of being too optimistic on revenue forecasts. A year ago the forecast was for 10% revenue growth and the actual number was 7.5%.” If you look at expenses, there we have expenses growing at 9.7%. That seems outrageous to grow revenues at 9.7% in an inflationary environment of about 4-5% and in an already incredibly high expense base and budget deficit. The budget deficit is actually forecast to increase to R243bn. So this really from a fiscal, prudence and a financial stability perspective is disturbing.

“If we look at the details in terms of revenue and expenditure in terms of the budget, sadly there are no surprises. While there’s talk about SOPs not being holy cows, that isn’t followed through with any policy to speak of. The budget talks about an increase in financial support to Eskom of R23bn, a contingency reserve for other SOPs of R13bn. So we’re having about R36bn of additional support to SOPs. If you look at the flipside and what initiatives are there for growth, we talk about a fund for small businesses of R486m. The concern is that when you talk about growth initiatives and supporting small businesses, we talk in the millions. When we talk about debt and guarantees to SOPs, we talk in the billions.”

“If one is looking for positives, the budget does talk of an early retirement programme that has the potential to save in the order of R15bn in three years’ time. So maybe this is the beginning of the trimming down of a very bloated civil service and maybe we can take some comfort that there’s more to come. Hopefully post-election, government will get its finances more in order.”

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