Budget speech preview: KPMG economist outlines critical expectations
South Africa’s Minister of Finance Enoch Godongwana will on Wednesday this week deliver his much anticipated Budget Speech.
Frank Blackmore, KPMG’s lead economist told Business Report that many stakeholders, citizens, businesses within South Africa, investors and rating agencies outside the country will be paying keen attention to what the minister puts forward in the budget.
Blackmore unpacked his predictions on what Godongwana could touch on during his speech.
Blackmore said that on the revenue side, KPMG do not expect many changes besides the usual increases in sin taxes, something that SA has began to expect on an annual basis.
“The reason for this is basically that South Africa already taxes at a really high level as well as the narrow tax base in South Africa. On the expenditure side, we expect the usual increases around inflation, things such education, health, public safety and security and also potentially social grants. We usually have an increase in the size of those grants being announced at the budget, but no surprises are expected on the expenditure side,” Blackmore said.
“Key elements from the Sona speech, will be addressed in the budget, such as changes to the municipal finances, the transformation fund that was announced by the President, the basic income grant that may flow from the social relief distress grant, etc. We are expecting more funding going towards NHI and other initiatives that were mentioned. the fiscal space is already constrained, and how to fund these additional programs or initiatives will be where most of the focus should lie,” Blackmore said.
He added that international and local investors, as well as the rating agencies will look for more of this fiscal consolidation that took place over the last couple of budget speeches, including things such as, the public sector wage bill, given that it's such a massive component of the budget, and in aggregate, is larger than all the personal income taxes paid in South Africa for the approximately 1.3 million public sector employees.
“What is forecast to happen with respect to the size of that public sector that public sector wage bill? Secondly, what is projected to take place with the debt to GDP ratio? We know that at every budget event the size of that debt to GDP ratio tends to increase, and the peak of the debt to GDP ratio tends to come in a year. Invested investors and international rating agencies will want to see South Africa stick to the GDP ratios that were put forward at the mini budget towards the end of last year,” Blackmore added.
“One of the most important and fastest growing items in the budget concerns debt service costs which is larger than all corporate income taxes paid in South Africa and takes up about one out of every five of tax revenues collected, or 20% of revenue spent. Business and rating agencies will be looking at how much money is going towards infrastructure and economic development within the economy. This has always been a minor component of the budget, with the infrastructure getting around 5% of the budget, and infrastructure and economic development around 10% of the budget, even though it is this item that determines the rate of future economic growth in the in the country, and we know we need to increase that rate of growth in the economy in order to absorb more labour into the economy, reducing the unemployment rate and increasing the economic inclusion within the South African economy. So, it will be interesting to see what monies have been set aside for infrastructure - another important factor that the President spoke about in his Sona speech,” Blackmore further said.
BUSINESS REPORT