Gordhan MTBPS welcomed with caution

The Medium Term Budget Policy Statement (MTBPS) was an important opportunity to calm investor nerves and business confidence after a very difficult year.

This is the view of Nedbank Economic Unit coming after finance minister Pravin Gordhan presented the MTBPS with a few surprises. These will include the resilient tax revenue base which showed tax collections rising by 9.5% despite tough economic environment.

Gordhan’s talk of reducing wasteful spending in government has attracted considerable attention even though its impact in number terms will be insignificant.

Jansen van Nieuwenhuizen, a tax partner at Grant Thornton Johannesburg  said “The specific mention that the Minister made this afternoon of the particular measures to deal with wasteful expenditure in Government is very encouraging.  Focus of the MTBPS was very much on the cost side and more holistic measures like the National Development Plan.”

The speech came amid rising concern over the slowing economy and its ability to push back the country’s high unemployment rate. There was also concern about the deficit which makes the country vulnerable to currency market shocks, an issue closely watched by global credit rating agencies.

The Nedbank team noted the focus of Gordhan’s speech on politically touchy subjects. This includes a clear tone designed to prop up the NDP a signal that government is going ahead with Employment Tax Incentive Bill. “This is despite strong trade union opposition and therefore sends a clear signal that tough (although this one really should not be) decisions can be taken by government even if there is opposition within its own alliance partners. Encouragingly, this seems to have broader ANC support,” noted the Nedbank statement.

Business Unity South Africa (BUSA) also harped on the politics saying it welcomes the MTBPS for its re-affirmation of government’s broad commitment to the NDP. “Certainty and predictability in the policy environment remains essential for business and investor confidence. BUSA sees the MTBPS as a realistic and balanced assessment of SA’s economic prospects and challenges”.

BUSA added the MTBPS exhibited better control over government spending and public debt management and should create an improved fiscal basis for the future. “BUSA nonetheless remains concerned that, despite the positive message of the MTBPS, the already sluggish growth rate of 2.1% in the South African economy this year is only expected to rise to 3.5% by 2016. This is completely inadequate to meet the overarching challenges of unemployment, poverty and inequality”.

Nedbank added that “Hopefully, the determination to implement plans more aggressively, reduce wasteful spending, and government’s recent understanding of how inclement the investment climate has become will compensate for the slower reduction in the deficit and the bigger build up in debt. Much will now also depend on the global financial climate”.

Nedbank noted that “At odds with the pattern of the past four years, National Treasury is confident that government will more than meet the budget deficit target set out in the 2013 National Budget.

The deficit is expected to amount to a smaller 4,2% of gdp in 2013/14 compared with the original estimate of

4.6% of GDP. The better-than expected outcome was due to changes to the methodology used to calculate the deficit, with extraordinary receipts and payments now brought and unexpected resilience in tax revenue.

Van Nieuwenhuizen said “In general the Budget Speeches during February always raise concern about increases in public spending mostly due to the Public Wage Bill.  Today, the Finance Minister has made specific comments around the fact that future increases in the Public Wages will be inflation linked going forward. Although there will be an increase in overall spending, curbing of the Public Wage bill with specific and particular references made this afternoon, is promising.”

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