Pravin’s balancing act doesn’t convince

Finance Minister Pravin Gordhan walked a tight rope between balancing government’s books, kickstarting economic growth and appeasing ratings agencies in his budget speech on Wednesday, economists say.

But it seems some analysts aren’t quite buying his balancing act. “We are at a junction where trying to juggle all these different interests is not going to work. We need to be bold. But the minister is caught between a rock and a hard place from a political perspective,” said Lullu Krugel, chief economist at KPMG.

She said the budget was marked by “too much tax and too little growth”.

Plans to raise an additional R28 billion include increases in sin taxes, the dividend withholding tax rate, fuel levy and road accident fund levy, and a new personal income tax rate of 45% on taxable incomes in excess of R1.5 million.

Absa’s Chris Gilmour said the so-called super tax could further hamstring growth as the wealthy, faced with a bigger tax increase, reign in spending.

Sanisha Packirisamy, an economist at Momentum Investments, praised the redistributive nature of the budget. “They hit the higher income earners higher in terms of the tax reforms that have come through, but they’ve also sheltered lower income earners. They’ve done this by allowing for social grant increases in real terms of 2.3% per annum, they’ve also set aside R2.5 billion to compensate for bracket creep and they’ve also lowered the transfer duty threshold,” she said.

Krugel questioned the sustainability of personal income tax. “Our personal income tax rate of 38% is much higher than the OECD and the reliance on this indicates something wrong with the economy.”

Following estimated GDP growth of 0.5% last year, Treasury expects economic growth to average 1.3% in 2017 and 2% in 2018. All analysts felt the budget lacked clarity boosting growth. While the minister mentioned the national minimum wage agreement, analysts had hoped he would address labour market reforms, including decisions around secret ballots and announce concrete measures to address the state-owned-enterprises (SOEs) that are a drag on fiscal resources.

Trudi Makhaya, a consulting economist at Mercantile Bank, said SOEs, if properly managed, could play a transformative role in the economy. But the budget did mention policies that may boost growth.

Analysts were, however, pleased the country remains on the path to fiscal consolidation, with the budget deficit expected to narrow to 3.1% of GDP from 3.4% in the 2016/2017 fiscal year. The debt-to-GDP ratio is expected to stabilise at 48% from 50.7%.