Below is a special analysis of Minister Mboweni’s MTBPS Budget speech compiled especially for the Regenesys community by Helmo Preuss of Forecaster Ecosa.
In his maiden Medium Term Budget Policy Statement, Finance Minister Tito Mboweni started his speech with a quote from Charles Dickens’ “A Tale of Two Cities”
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity… we were all going direct to Heaven, we were all going direct the other way…
Mboweni said that is a very similar to where South Africa finds itself today.
“As a country, we stand at a crossroads. We can choose a path of hope; or a path of despair. We can go directly to Heaven, or as Dickens so politely puts it, we can go the other way. For ordinary South Africans, it has become a difficult time. Administered prices, such as electricity and fuel, have risen. Unemployment is unacceptably high. Poor services and corruption have hit the poor the hardest. Under the leadership of our President, and much like the central character in A Tale of Two Cities, we have, as a country, chosen the difficult path of redemption,” Mboweni said.
He noted that the MTBPS was a central part of our planning as a country and this was the 22nd iteration. It is designed to outline how we spend scarce resources for the benefit of all South Africans.
“This Policy Statement provides us with an opportunity to take stock of the strides we have taken in the year. We do this in a data driven way, providing credible evidence to judge our collective performance as a society. However, it is more than a set of numbers, reams of data, charts, graphs or words. Our performance should be measured by whether people are gainfully employed, whether our children are learning in decent schools, and whether we have health care facilities that are up to standard,” he said.
He added that the MTBPS was an opportunity to restore trust between government and society.
“South Africans correctly expect more from their government. They are right to expect that their money is spent wisely and productively, and goes to meeting their basic needs,” he said.
In the MTBPS itself, the Treasury said the government remains committed to fiscal sustainability, but there has been fiscal slippage since the 2018 Budget.
“Tax revenues have been revised down, partly due to higher value-added tax refunds. Despite spending pressures materialising, the expenditure ceiling remains intact as the anchor of fiscal policy. The consolidated budget deficit narrows from 4.2% in 2019/20 to 4.0% in 2021/22. Gross debt is expected to stabilise at 59.6% of GDP in 2023/24,” Treasury said.
This compares with the plateauing at 52.6% expected in 2021/22 in the February 2018 Budget. This will not please the ratings agencies as fiscal consolidation keeps on being pushed out or in other words, the can just gets kicked further down the road.
This slippage is most evident when we compare it with the 2015 MTBPS.
My main problem with the MTBPS is the conservative nominal GDP growth forecast and hence the low revenue collection.
In my view the Treasury growth projection for the calendar year 2018 is only 6.4%, which is 0.5 percentage points below the 6.9% y/y growth actually achieved in the first half of the year. The economic stimulus plan announced in September and the above-inflation wage awards to civil servants should ensure that nominal GDP growth in the second half of 2018 is higher than the first half.
In the first half of 2018, real GDP growth as measured from the expenditure side, which is how Treasury frames its projections, was 1.2% y/y, while GDP inflation accelerated to 7.1% y/y in the second quarter from 5.3% y/y as the rand was weaker in the second quarter than in the first quarter.
A higher nominal GDP results in higher tax revenue collections, so the 8.3% increase in tax collections for this fiscal year may be substantially higher. In the first five months of the fiscal year, revenue grew by 11.2% y/y. In discussions with Treasury officials they conceded I may be right, but the true test would be the December revenue collection, as that is when the largest single monthly collection of corporate tax takes place.
Even with the slow revenue growth that Treasury projects, the call on the domestic bond market will be reduced to R175.5bn from the R191bn given in the February 2018 Budget. This is in large measure due to the increase in foreign loans to R53.8bn from R38bn in the Budget as Treasury will issue another US$2bn bond before the end of March 2019.
“The President’s economic stimulus and recovery plan is intended to address the country’s most pressing challenges: anaemic economic growth and high unemployment. The initiative includes an infrastructure fund to be developed in partnership with the private sector, reforms to enhance economic growth and improve governance, and support for urgent education and health needs,” the MTBPS said.
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