Tito’s budget not all ‘doom and gloom’
Markets have ‘reacted well to finance minister’s economic plans for SA’
While the initial reaction to finance minister Tito Mboweni’s budget speech caused “heart failure” in some circles, the rand is regaining strength.
That is according to Nedbank Group chief economist Dennis Dykes, who spoke at the budget briefing breakfast hosted by Mazars and Nedbank.
Dykes also serves as a council member of the Economic Society of South Africa, and is the former director of the South African Chamber of Commerce and Industry (SACCI).
He spoke alongside Mazars tax manager Kathy Dixon.
“When the annual budget was unpacked, it raised a lot of concerns, because it was one of the toughest budget speeches when you consider the difficult circumstances surrounding our economy at the moment. When it got out there, it came as a shock. But with understanding of what it meant, when everything was explained elaborately by analysis, it was received positively by the markets,” Dykes said.
“While the country’s key concern is Eskom, there is more to their problems than meets the eye. They not only have maladministration problems, [but] there are also severe operational issues which is why Medupi and Kusile power stations are not performing to full capacity.”
Dykes said the power stations were only operating at 60%, with Eskom producing less energy compared to what it did in 2004.
“Eskom is a prime example of the destructive impact of political interference, maladministration and widespread corruption.
“Electricity intensity has collapsed and the price of electricity has increased by over 170% with plans for a further increase of 4% soon. Even though their workforce has increased by 50%, they have failed to produce adequate electricity. It produced less in 2018 than it has since 2004-05.”
However, government was communicating more effectively about what was happening and how to improve the situation, which had resulted in a positive reception, Dykes said.
“Government is more open which is very positive and is evident with their commitment to launch a new tribunal and the new crime unit.”
That said, the country was heavily in debt, “the most it has ever been in the past 10 years with more than R470bn lost in the GDP since 2014”.
Dixon said the country would likely see more tax proposals to increase collection, not just by adjusting for inflation but also the refining of the foreign employment income tax exemption for South African residents.
“From March 1 2020 South African residents who spend more than 183 days in employment outside the country will be subject to SA tax on foreign employment income exceeding R1m, which could result in double taxation.”