Spotlight on Gigaba’s maiden budget

Little good news expected in light of state upheavals and predicted huge tax revenue shortfall

With speculation rife over a multibillion-rand shortfall in tax revenue for the 2018 budget, all ears will be on Finance Minister Malusi Gigaba’s first budget speech in parliament today.

Gigaba will present his first medium-term budget policy statement at a time when the tax revenue shortfall stands at around R40-billion.

Coming in a politically charged fourth quarter, and in the wake of another cabinet reshuffle as well as changes to the boards of the SABC and SAA, the medium-term budget policy statement is expected to feature government commitments to fiscal consolidation, reforms at many beleaguered state-owned enterprises and economic growth.

Raising the spectre of tax hikes, economists have predicted 2017-18 tax revenue shortfalls of between R30-billion and a huge R50-billion.

Gigaba’s handling of this, as well as the government’s efforts to maintain the country’s credit-worthiness through its sovereign ratings, is expected to be closely scrutinised.

Old Mutual Investment Group senior economist Johann Els said investors would be expecting Gigaba to provide more certainty about the government’s commitment to fiscal consolidation, to reforms at parastatals and to a higher economic growth rate.

“These factors are absolutely crucial to avoid a ratings downgrade and improve confidence of companies and consumers,” Els said.

“While Treasury will likely try to mitigate the impact on the deficit somewhat by also reporting lower spending and utilising the contingency reserve, the budget deficit will probably be close to 4% of GDP versus the 3.1% deficit target envisaged at the time of the February budget speech,” he said.

“If we are to avoid further cuts to [our] sovereign rating, the ratings agencies will need to see plans to reduce the deficit over time, and not only through extra revenue from existing or new taxes, but also through policy plans to raise South Africa’s economic growth.”

Rating agencies would also be accessing how Gigaba addressed the situation around state-owned enterprises, he said.

Bay mayoral committee member Retief Odendaal said he anticipated little good news.

“Our economy is still limping along with very little growth and all indications are that the state will have a massive revenue collection shortfall this year,” he said.

“It would be very prudent of the finance minister to severely cut expenditure to reduce the deficit.

“A comprehensive review of government spending would be a step in the right direction.

“Should Gigaba be unwilling to curb the expenditure levels, his only other option would be to increase borrowing,” Odendaal said.

“Insofar as our metro is concerned, we trust that we will receive some much-needed disaster drought relief . . . to ensure that we can fully implement our drought disaster plan.

“We would also want to see some much-needed additional infrastructure grant funding being allocated to local government, but that is likely to remain wishful thinking given the state of the fiscus.”

Nelson Mandela Bay Business Chamber spokeswoman Cindy Preller said the speech would be closely watched.

“[It is] at a crucial time in our country’s history, when a sense of urgency exists to turn around the sluggish economic growth forecast at 1.2% for the next two years.

“In particular, the chamber is very concerned by the effect the proposed 19.9% electricity increase will have on the local and South African economy [next year].”

Preller said the chamber would again want issues of good governance and ethical leadership addressed; greater infrastructure investment in the Eastern Cape, and support for small businesses prioritised.

“Most importantly, we advocate strongly for a comprehensive reform of state-owned entities.”

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