Budget 2013: Citi’s flash comment

Macro forecasts weaker — This is not surprising and real GDP is now projected at 2.7% in 2013, 3.5% in 2014 and 3.8% in 2015 (from 3.0%, 3.8% and 4.1% respectively at the time of the Oct-12 MTBPS). Nominal GDP for FY12/13 has been pushed down 2ppt (to 7.9%) but the outer years are only expected to be marginally lower.

Budget deficits pushed wider — As expected, the budget deficit widens through the years. The main budget balance (which determines the funding requirement) widens 0.5pp in FY12/13 (to -5.7%) and narrows to -3.6% by FY15/16 (-0.1pp wider). The

consolidated budget (which includes revenues from social security funds, public entities and provinces) is now projected 0.4pp wider in FY12/13 (-5.2%) narrowing to -3.1% by FY15-16 (-0.1pp wider). We are more bearish on nominal GDP and therefore look for a main budget deficit of -3.8% by FY15/16.

Revenues projected lower but expenditure is cut — Revenues are projected lower given slower economic growth estimates. As expected, personal and corporate income tax revenue estimates have been downgraded given that both are running below their historical rates. VAT collection has been better-than-expected. Revenue estimates have been downgraded R25.3bn out to FY15/16. Spending has been cut by R4.5bn over the next 4 fiscal years. This is mostly due to reprioritization and spending efficiencies. Still, the fall in revenue projections is greater which keeps the budget deficit under pressure.

Net borrowing requirement increases — Wider deficits means more financing and an additional R20.5bn is needed (out to FY15/16). Most of this will come from the domestic long-term market (issuance to increase to an average R165bn per year over the forecast period) while more cash surplus will also be utilized. Total net loan debt as % GDP is now forecasted just over 40% by Fy15/16 versus 39.1% at the October MTBPS.

Quick peek at taxes — Nothing unusually significant was announced however, a tax review is underway to assess whether revenues are able to expenditure needs. Announced tax proposals include: personal income tax relief of R7bn to account for inflation, more small businesses now qualify for tax relief, excise duties on tobacco and alcohol are to rise 5.7%-10%, a carbon tax of R120 per ton of CO2 equivalent from 2015 (increasing at 10% per year), the CO2 vehicle emissions tax will increase and ecommerce goods and services will no longer be VAT-exempt. Also interesting is an employment tax incentive to support youth employment, echoing the controversial youth wage subsidy but likely to be more ‘union-friendly’. Finally, the old age grant will become ‘universal’ from 2016.

This is an unedited statement issued by Citi

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