What to look out for in the mini-budget this week

Finance minister Pravin Gordhan is set to deliver his medium-term budget update (aka, the “mini-budget”) on Wednesday, 26 October, where a few announcements will be made that will affect everyday South Africans in the long-term.

According to Old Mutual strategist, Izak Odenaal, the mini-budget is not the place where items such as an increase in the fuel levy or sin taxes will be announced – these are usually carried in the February budget and implemented in the following April.

“This is not the time for big tax changes… (however), ratings agencies will be paying close attention to the outcomes, which will ultimately impact all South Africans,” he said.

Among the announcements Gordhan will make, will be around tax collection, and how South Africa is faring in its struggle to reduce its current account deficit.

“We know that the government has been borrowing a lot of money, because its tax revenues have been below what its spending rate is over the last couple of years,” he said.

What South Africa needs to do – and what the finance minister needs to show is:

  • Whether South Africa hit its tax collection targets;
  • Whether this is enough to help reduce the budget deficit;
  • A ‘credible plan’ to reduce the deficit, and promote long-term growth; and

While no announcement will be made this week, Odendaal believes South Africa will see a hike in tax rates (in either VAT or in personal income / capital gains tax) in February 2017, and interested South Africans should look out for any announcements or hints pointing towards that in this week’s speech.

All of these factors will be under close scrutiny by ratings agencies, and will determine if South Africa is cut to junk status in December, even though several economists believe it may already be too late to escape the chop.

More on the budget

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What to look out for in the mini-budget this week