Mid-term Budget reaction: Mostly good news – but economists are worried

 ·27 Oct 2022

In the wake of finance minister Enoch Godongwana Medium-Term Budget Policy Statement, economists have chimed in on the National Treasury’s decisions giving mostly positive reactions for the short term but erring on the side of caution for longer-term outlooks and implementation.

Godongowana delivered the MTBPS on Wednesday, 26 October covering alongside the topics of Eksom and e-tolling in Gauteng – other important fiscal talking points, pricking up the ears of South African economists from across industries.

Economists from investment firm Citadel said that Godognwana made a fair and balanced assessment of the economic risks facing South Africa and the remedies needed to address them.

Despite this, they noted that, once again, there was a risk that the National Treasury’s good intentions would be derailed in the implementation phase.

Maarten Ackerman, the group’s chief economist, said that nothing coming out of the budget shocked the markets as it was well-balanced between social and investment spending.

“But, whether we can get this well-crafted budget over the line at the implementation stage, to help the economy grow, and not lose much of it to inaction, mismanagement and corruption, is what will really matter in the months ahead.”

“Godongwana’s increased infrastructure spending will be positive for job creation and economic stimulus, but only if we can address current bottlenecks and flawed tender processes,” added Ackerman.

George Herman, Chief Investment Officer at Citadel, remains somewhat sceptical of the government’s continued talk of reining in its dysfunctional state-owned enterprises (SOEs), including Eskom, Transnet, Denel and Sanral.

We hear it in every budget speech,” he said.

One of the biggest positives that emerged was plans to drastically increase fixed capital formation spending by 70% over the next three years, but it would all come down to how that money was used, said Herman.

“With the increased spending on infrastructure comes higher investor confidence which will eventually lead to lower unemployment and higher economic growth over time.”

Bernard Sacks, tax partner at Mazars South Africa, echoed this sentiment, stating that the fair amount of planned infrastructure spending is good news and will, in turn, assist with stimulating the economy.

Speaking on taxation, he noted that the honeymoon phase regarding additional taxes on commodity prices is over – however, the corporate sector, including banking, real estate and finance, seems to have performed better than expected.

“Tax collections are down in some respects, such as the fuel levy, due to the fuel levy relief fund, and is increased in other areas, specifically corporate tax and personal tax,” said Sacks.

He said that no new taxes have been announced, which is normal for this time of year.

Positives drawn from the MTBPS by EY Africa’s chief economist Angelika Goliger include the narrowing of the budget deficit to 3.2% of GDP in 2025/26 from 4.9% in 2022/23 and the gross debt to GDP forecast to reach 63% by 2030/31.

Goliger said that the optimistic picture does face some fiscal risks, including the outlook for the public sector wage bill, the plan for Eskom debt, and prospects for the basic income grant – such still remain unclear and in need of more certainty.

SME service provider Lulalend’s chief risk officer, Garth Rossiter, said that more could have been done for small and medium businesses, but the government does seem to be listening to the industry. He added that the lowering of barriers to entry planned by the government is key to growing the economy.

“The minister wasn’t clear though on exactly how they plan to do this, so some clarity here might have been beneficial, but he is saying the right things,” said Rossiter.


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