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Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) on Wednesday is likely to be a clear and honest depiction of South Africa’s difficult economic situation.
While little is known about this, the government’s confirmation is likely to be shocking, says Andrew Duvenage, managing director of NFB Private Wealth Management.
Dr Elna Moolman, Head of Macroeconomic, Fixed Income and Currency Research at Standard Bank South Africa, says it is unlikely that any new concrete measures that directly affect consumers will be announced. “Any specific fiscal decision is likely to only be expected in the 2021 Budget and the government has already signaled its intention regarding future social subsidies and employment support.”
Professor Jannie Rossouw, Acting Director of Wits Business School, says the MTBPS will show South Africans the South African government’s economic growth expectations over the next three years and hopes that it will provide a clearer picture of the economic damage of Covid-19.
Plans to reactivate the economy
The financial implications of the president’s plans will become clearer in the MTBPS, says Rossouw. Moolman awaits more details on traction with ongoing and / or planned growth support interventions. “If the plans are implemented as planned, I expect an economic growth trend boost, although this will take time.”
Government debt
While Moolman expects an increase in public debt, as well as a higher public debt-to-GDP trajectory than in the Supplementary Budget “active” scenario, he says it is possibly more important if the government can give credible signals that debt it will stabilize in the medium term. than the exact level where it will peak.
Shortfall in tax collection
All three economists agree that there will be a deficit in tax collection. Duvenage says the question is what that shortfall will be and whether it will exceed estimates of R300 billion. “Over the years, the government has allowed tax collections to be diverted to personal income tax as the main source of tax collection.
“However, having lost more than 2 million jobs, this source of income has been significantly affected. As the finance minister acknowledged in the March budget speech, the government will not be able to get out of this crisis with taxes, so it remains to be seen if it tries to raise tax rates in an already overburdened and highly concentrated country. tax base “.
Public spending
Rossouw expects to see a reduction in public spending. “If not, we are in serious trouble. The government has to spend less to have less income. ”Moolman hopes that the government will be very successful in achieving the savings established in the Supplemental Budget.
Duvenage notes that Mboweni has frequently referred to the need to control public spending. “However, there has been much criticism of what is considered his austerity-oriented approach based on the argument that austerity during an economic crisis causes significant economic pain and does more harm than good.”
Fiscal sustainability
Moolman also expects stricter measures to achieve fiscal sustainability. “In my opinion, the focus in the first part of the forecast period will be on spending restrictions; thereafter, it depends on growth reforms. In the Supplemental Budget, we were encouraged by the government’s focus on the aspects of the budget over which it has the most control, that is, spending.
“While it is important that the MTBPS indicate confidence and commitment to growth reforms, the credibility of the fiscal consolidation agenda requires a longer-term pragmatic growth assumption. In other words, the fiscal consolidation plan will only be credible if it does not assume overly optimistic growth forecasts. “
Rossouw emphasizes that since South Africa has reached a fiscal cliff, it is necessary to show how fiscal sustainability will be restored.
Accelerated growth
Rossouw says the MTBPS will show the financial and fiscal impact of the government’s recovery plans. Moolman awaits more details on some of the ongoing and / or planned interventions and perhaps an update to the Treasury’s estimates of the increased growth that these interventions will support.
Will Mboweni stand firm to cut expenses?
Duvenage says that while Mboweni has voiced his opinion on “shutting the hippopotamus,” the growing deficit, this is unlikely to be possible to the point of avoiding debt being needed to plug the huge hole in the treasury.
Moolman doubts that the government will achieve its “active” scenario in the Supplementary Budget. “However, we estimate that most of the savings could be achieved for a fiscal trajectory somewhat worse than that posed in the aforementioned scenario, but we expect a clear signal of intention to consolidate fiscally.”
Measures to reverse poverty and inequality
For Rossouw, social grant payments are an important policy measure aimed at tackling poverty and inequality. Moolman says he does not expect any new measures to be announced. “Presumably, all of these interventions were already disclosed by the president in his recently disclosed growth plan.”
Duvenage says that in these limited circumstances it will be very difficult to implement measures that reverse poverty and inequality. “The reality is that the only way to address these twin problems is to create consistent and sustainable economic growth, something that has long been absent in the local context.”
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