Budget: top of the list issues

URGENT: NHI, ESKOM AND BUDGET DEFICIT

With Tito Mboweni as the new minister of finance, expectations were that we would finally see those tough decisions being made in the February 2019 budget. There are three key issues he needs to address:

Narrowing the budget deficit

The general expectation is that the consolidated budget deficit will narrow from a projected 4.2% for the fiscal year starting April 1, 2019, to below 4%.

December revenue data showed a disappointing collection rate across all three major sources, particularly personal and corporate income tax.

There is little room to raise taxes. So any dramatic spending cuts can only be made through job cuts – and that is very unlikely in an election year.

Eskom

We need to see details of the measure of that support in the budget, and the manner in which it is linked to a general restructuring of Eskom.

If all we see is a bailout, it will be the worst possible outcome.

Moody’s has stated that any debt relief for Eskom from the government without immediate cost cuts at the utility would be credit negative.

Treasury will need to ensure that any support for Eskom is explicitly linked to it achieving cost containment.

National health insurance

While the costs to implement NHI would swamp the budget, we expect the Bill will outline the principles for a gradual implementation over a long period of time.

As the success of the NHI requires a vast improvement in the public health system, we would also hope that implementation is dependent on measured progress in the system.

Moody’s has stated that any debt relief for Eskom from the government without immediate cost cuts at the utility would be credit negative.