• Jonathan Faurie - FAnews Journalist

Fasten your seatbelts for a bumpy ride

Since 2010 there has been a predictable narrative associated with the Budget Speech. We are living in tough economic times; the Budget is a fine balancing act of scarce resources and the public needs to tighten their belts.

Over the years, this narrative was reinforced through the assistance of a number of key tax increases in order to increase revenue. However, since Cyril Ramaphosa was elected the President of South Africa, there has been an air of positivity that this could be a year of change.

FAnews spoke to Isaah Mhlanga – Executive Chief Economist at Alexander Forbes Investments – and Rowan Burger – Head of Strategy at Momentum Investments – to find out what you can expect from this year’s budget.

Don’t expect much

Mhlanga warns that people must not expect anything ground breaking in this year’s budget.

“There is very little room to manoeuvre in this budget. Expenditure is up and revenue is down. However, there is some good news in that our fiscal deficit is looking a bit better than it did a year ago. Despite this, the road to recovery is still very long,” said Mhlanga.

He added that growth has been declining for some time, but expenditure has been increasing. This needs to be managed, particularly when it comes to social spending (expenditure on grants).

Hope for Eskom

Just when everybody thought that there was no hope for Eskom, Mhlanga reported that Eskom will actually be a highlight of the Budget.

“The one thing that most people are looking forward to is a bit more information into the financial support for the unbundling of Eskom. Ramaphosa made the unbundling announcement during his State of the Nation Address, and an unbundling announcement with financial support will be a credit neutral announcement. Even credit ratings agency Moodies alluded to the fact where they said that if government were to announce an unbundling plan without financial backing, it would be negative and their outlook on the country would be changed from neutral to negative,” said Mhlanga.

He added that we can expect to see a financial assistance plan that will be worth about R20 billion.

More joy?

If you were happy that there were no changes to personal income tax (PIT) in 2018, then it is your time to feel happy again. Mhlanga said that there will be no increases in PIT because it is an election year.

This will also be a major influencing factor behind not increasing the VAT rate. “The 2018 increase in VAT was the first increase since 1993. And even then, government came under significant pressure and had to make an announcement about a lot of additional zero rated products. It really wouldn’t make sense for Treasury to increase VAT again.

This is where the buck stops though. “The public will have to find another notch that they can use to tighten their belts. The fuel levy will be increased again, and this will have a direct impact on the consumer. Consumers will need to find a way to become fiscally disciplined,” said Mhlanga.

One hand cannot clap

There is an English proverb which says that one hand cannot clap.

As both hands need to work in tandem, so the financial services industry is affected by a depressed economic environment.

“The financial services industry thrives when the rest of the economy is thriving. We therefore find ourselves much like the rest of corporate South Africa in need of good news from the budget,” said Burger.