President Cyril Ramaphosa’s State of the Nation Address (Sona) coupled with his Medium Term Budget Policy Statement (MTBPS) last October gave an estimate of what to expect in the upcoming budget from Finance Minister Enoch Godongwana.
Investec treasury economist Tertia Jacobs believes the main budget deficit result for the current fiscal year could be better than the National Treasury’s forecast of 4.9% of GDP. Lower spending, and corporate income tax receipts ahead of target, could reduce the deficit to 4.5% of GDP.
Investec Corporate and Institutional Banking (ICIB) estimates nominal GDP growth in FY22/23 is likely to be ahead of the National Treasury’s forecast of 5.8%, at 7.2%.
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Better than expected nominal growth for 2022/23 due to restocking and positive performance in export value, as commodity prices and especially coal prices improved.
The reopening of the economy is supporting the service sector and consumer spending is off to a strong start before higher inflation starts to erode purchasing power.
The variance in growth forecasts is wide, with the South African Reserve Bank lowering its 2023 growth forecast to 0.3%. ICIB puts it at 0.7%, while the upper range of economists’ forecasts is 1.3%. The National Treasury’s forecast of 1.4% will also be lowered.
“The key issue to watch out for in this budget is the e-toll and how Gauteng can finance the R13 billion portion that will be paid to Sanral, in addition to the annual maintenance of R2 billion to R3 billion. We have to see how this payment plan works,” Jacobs said.
The nature of the slowdown is important
Not all economic slowdowns are the same, adds Jacobs. The weakness of Covid in 2020 resulted in tax revenues of up to R120 billion, then a rapid recovery in the following year.
“The current delay is caused by the intensification of load shedding to stages 4 to 6, which has had a detrimental effect on many sectors.
“Sectors such as agriculture, manufacturing and trade are affected by the burden.
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Ramaphosa Sona’s speech also suggested help from the Treasury to reduce Eskom’s R400 billion debt pile, which would allow for much needed investment in maintenance and transmission.
The new electricity minister will be the central command post to resolve the load shedding crisis, although how that will work remains to be seen.
The rise of PPP
Due to Treasury spending constraints, public-private partnerships (PPPs) will be a feature of infrastructure investment and development going forward. Trade unions have traditionally been hostile to them, because they see this partnership privatized in all but name. In 2021, the government announced its intention to simplify and streamline the PPP, but there is no evidence of much progress on this – perhaps due to hostility from the left.
Reformation
This is a relatively insignificant reform from a budgetary perspective but requires decisive action by the government. Despite the promise of creating an enabling environment for business by cutting red tape in areas such as cross-border trade, property registration and work permits for foreigners with the right skills, little seems to have been done.
The State of National Disaster that was recently declared to deal with the problem of electricity supply is facing a big reaction from the opposition parties, businesses and civil society that are still smarting from the impact of the terrible lockdown during the Covid.
“We remain circumspect about the National State of Disaster and want more information about how it will roll out, and how long it will be implemented in the country,” says Jacobs.
“What could be a major benefit for the country is the announcement of incentives for solar rooftop panels.”
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Social grants
In his Sona speech, Ramaphosa said 25 million South Africans receive some form of income support from the government, in addition to two million households receiving free basic water, free basic electricity and free solid waste removal.
The cost of social grants must be adjusted for inflation, and there is no scope to reduce these expenditures without major investment and labor.
Tax incentives for rooftop solar
“One of the big factors to watch in 2023/24 is the rise in input costs as companies spend more on diesel, generators and diesel,” Jacobs said.
“We also want to be careful about the amount of consumer spending will decrease next year. In addition, there will be no major retrenchment, salary increases will still be related to inflation, and fixed investment will improve as companies and households strive for energy self-sufficiency.
Debt sustainability
There is a possibility that the Treasury will report a primary surplus – meaning that non-interest expenses are less than revenue. This is important for debt stabilization. While the Treasury aims to achieve a primary surplus by 2023/24, this may not be achieved due to spending pressures and lower revenue receipts.
Brought to Investec.
This article originally appeared on Moneyweb and is republished with permission.
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