We spoke to our Group Chief Economist, Goolam Ballim and he shared with us his insights ahead of the 2016 South African National Budget Speech. Here are some of the key points we picked up:
“The presentation of South Africa’s National Budget is upon us, and while it typically enjoys large public interest, this year bears even more prominence. South Africa is not merely seeking to stem several years of deterioration in its credit status, but is now seeking to stave off slippage into the sub-investment category, or so-called “junk” class.
Notably, this moniker is more than a mere label denoting a government's diminished capacity to pay its bills. Instead, it addresses an ecosystem bedeviled by political fissures, economic malaise and social insecurity. Moreover, it’s often the case that once relegated to “junk”, a nation can remain locked in economic disorder for years. Hence, the forthcoming Budget is particularly momentous.
Minister Gordhan recognises that public finances reflect more than merely the mathematics of revenue and spending; it embodies South Africans’ ideals, aspirations and even fears. It is the financial representation of a nation’s yearning for prosperity, and the Minister is acutely aware that his challenges are colossal.
Minister Gordhan must present a credible, multi-year expenditure path that balances operational, social and investment expenditure. Specifically, arresting the disproportionate public sector wage bill, cauterizing the drain by state-owned entities, and leashing unrealistic nuclear ambitions are critical in infusing sustainability into the budget narrative.
However, even if draconian, he will be unable to reset our fiscal course solely on spending restraint; instead, he is also compelled to cast a wider net to harvest more revenue. Simply put, the tax burden is going to rise.
The Minister’s usual levers, fuel taxes, sin taxes, and income taxes may be disproportionately ensnared. Even Value Added Tax is in the crosshairs; a half-a-percentage point increase could raise a hefty R10bn for the fiscus. South Africans are in for a shake-down, but it’s a smaller price to pay than the long-term costs associated with “junk” grade.
The Minister is also likely to reflect on the fledgling compact between business and the government. While a social accord has long eluded South Africa, there is now a nascent treaty with these entities at the vanguard. Business cradles in its palms South Africa’s long-term growth potential, through its investments. The Minister may signal that businesses are prepared to invest their capital and animal spirits, in exchange for sincere and enduring state reforms.
I suspect that when Minister Gordhan concludes his speech, and after he dutifully thanks his family for their unstinting support, we may be content to gently sway to Gloria Gaynor’s 1979 hit song, I will survive.”