Gordhan is boxed in and running out of options

Finance minister Pravin Gordhan’s Budget for 2017 held no surprises, with all the expected tax announcements being made – but the minister is running out of cards to play to add revenue to the country’s already threadbare coffers.

This is according to research analyst at Nomura, Peter Attard Montalto, who describe the overall Budget 2017 as “disappointing, but not unexpectedly so”.

“There is now virtually nothing left in the revenue store except a VAT increase,” the analyst said.

“The scatter-gun approach on revenue should fill the pencilled-in gap with much emphasis on taxing high earners; however, we think growth expectations are still too optimistic and remove the need for more difficult decisions on expenditure with significant cuts in irregular expenditure still required.

“We are concerned by the step-up in contingent liabilities, and while ratings agencies view the budget as ‘ok’, (they) are likely to focus on this and the risks to growth,” he said.

Where the speech was more revealing was the where the National Treasury sat, politically, Attard Montalto said.

The Budget speech has traditionally been “centred” on the political spectrum, sticking to the numbers rather than playing into specific ideologies. However, the 2017 speech came across as particularly left-leaning, Attard Montalto said.

There was a strong focus on redistribution and transformation which, while not as aggressive as president Jacob Zuma’s state of the nation address, still gave credence to the call for ‘radical economic transformation’.

“Radical economic transformation was not endorsed, per se, but was dissected and given some time of day.”

“The speech made the usual calls for less corruption and tighter controls over procurement, but not in the same style of the ‘battle cry’ as in the past. We were slightly surprised by the tone as a result,” the analyst said.

“The budget speech showed the NT more boxed in. There was nothing new to boost medium-run growth on the policy front, and…there was no particular new push on parastatals or wider economic policies.”

“We think the NT again chose to do the minimum amount necessary,” Attard Montalto said.

Cabinet reshuffle is coming

With the Budget out of the way, the next ‘big event’ to keep an eye on is the anticipated cabinet reshuffle, which Nomura believes will happen in mid-March.

The group holds the baseline that the shuffle will remove SACP members from cabinet and will also axe deputy finance minister Mcebisi Jonas, to be replaced by incoming MP, Brian Molefe.

“There is a rising probibility of a (Pravin Gordhan exit), but this is not our baseline,” Nomura said.

“We await the confirmation that Brian Molefe has entered parliament and that Nkosazana Dlamini-Zuma has also entered parliament as the next steps to the reshuffle.”

A negative cabinet reshuffle (where Gordhan is given the axe, or even Jonas) could push ratings agencies to cut South Africa to junk ahead of the expected reviews in April, but based on the budget alone, Nomura believes that ratings firms will wait for growth data in the second half of the year before making adverse moves.

Read: Where Gordhan will find R28 billion in additional tax revenue in 2017

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Gordhan is boxed in and running out of options