How analysts view Gordhan's mini budget address

Cape Town - Economists, analysts and tax experts had mixed views on the medium-term budget policy statement (MTBPS) delivered by Finance Minister Pravin Gordhan on Wednesday. 

Some said he should have elaborated more on Treasury’s intentions to collect more tax revenue next year, while others lauded his speech as statesman-like and sufficient to stave off a ratings downgrade. 

READ: South Africans to pay more tax next year

“The Finance Minister was always going to have to scrape the bottom of the barrel in order to present a broadly consistent budget deficit and debt consolidation trajectory compared to what he projected in the national budget in February this year,” said Jeffrey Schultz, economist at BNP Paribas Securities South Africa. 

“Much of the focus in the finance minister’s speech centred on ‘fluffy detail’ and the need to ‘work together’ to achieve a common goal and to remove the structural bottlenecks in the economy,” Schultz said.

He said it was unfortunate that there were few ground breaking announcements that provided tangible evidence of structural reform progress.

A possible ratings breather

Schultz said the content of Gordhan’s speech could have given South Africa another six months of “ratings reprieve”. 

“Therefore while we think that Standard & Poor’s (S&P) could potentially give the sovereign the benefit of the doubt once again on 2 December, it remains a close call. 

“In our view Mr Gordhan and his team, on their own, are not necessarily enough to buy the country’s investment grade rating more time. The wild card here remains the politics with another cabinet reshuffle (and the removal of the finance minister) before the end of the year still a very real possibility,” Schultz said. 

Gina Schoeman, economist at Citi, said the MTBPS could be “good enough” to appease ratings agencies ahead of the credit reviews at the end of the year.

READ: Gordhan admits dampening effect of fiscal consolidation

“But critically one must remember that fiscal policy is only one factor that is necessary to avoid a December 2016 downgrade. In addition to this, the GDP outlook cannot deteriorate before the respective reviews and importantly, we believe the agencies will want to see some reform announced, even if it is only labour reform in the form of a secret strike ballot.” 

Eugene du Plessis, Partner and Head of Tax at Grant Thornton, said Gordhan’s overarching message of “collective responsibility” underlies the theme of the mini budget speech he delivered. 

“He addressed the issue of rebuilding trust by reinforcing the idea that we can put as many measures as we wish in place but there are many other influencers and processes that impact whether we can achieve the plans which were originally put in place,” Du Plessis said. 

He was heartened by Treasury’s announcement that additional funding will be made available for universities. “At least making more funds available is a step in the right direction – it’s encouraging to see something is being done.” 

READ: R17bn over 3 years needed to fund higher education - Gordhan

Tumisho Grater, Economic Strategist at Novare, said Gordhan continued on the path of fiscal consolidation in his MTBPS address, while being cognisant to avoid measures that would inhibit investment in the current low growth environment.

“The impact of the country’s anaemic growth was reflected in the new revenue projection for the current year, which is R23bn less than what was estimated in February. 

“The country’s economic growth was also revised lower for the 2016 calendar year to 0.5% from the February estimate of 0.9%. Expectations are that appropriate policies will result in a rapid recovery in growth, which is projected to climb to 1.7% next year,” Grater said. 

According to Johann Els, Economist at Old Mutual Investment Group, the “relatively solid MTBPS” is best in the current circumstances. “A tighter stance might have been too damaging to the economy.”

However, it remains to be seen how this will influence South Africa’s sovereign credit rating, Els said. “Ratings agencies do not only look at the budget, but also economic growth.” 

READ: Investment needed for faster growth

Els was of the view that S&P will be waiting for more news on a national minimum wage and if labour unions will allow a secret strike ballot. 

Tertius Troost, Tax Consultant at Mazars South Africa, opined that more clarity is needed on how exactly National Treasury intends on collecting a further R43bn through tax measures over the next two years.

“A number of mechanisms for additional tax revenue have already been put forward, such as the new trust legislation and sugar tax, but it is not clear whether these measures will be sufficient to raise this amount," Troost said. 

David Crosoer, Executive of Research and Investments at PPS Investments, was of the view that Gordhan may have bought South Africa more time through the speech he delivered. “But the jury is still out on whether the country will be making good use of it.” 

South Africa is facing tough choices even if economic growth lives up to Treasury's fairly optimistic assumptions, Troost said. 

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