Skills development and debt reduction will be the top topics
ECONOMISTS and experts this week said they expected Finance Minister Pravin Gordhan’s budget speech on Wednesday to focus on skills development, debt reduction and a curb in government spending to address the moribund economy.
Janine Myburgh, the president of the Cape Chamber of Commerce and Industry, said a membership survey showed that businesses were deeply concerned about education and the need to develop the skills necessary to grow the economy.
“Without these skills, particularly in maths and sciences, it is very difficult to build a modern economy.”
Divert funds
She said skilled professionals also needed the support of technicians and artisans and that it was time to divert funds accumulated in the Setas to the technical universities, colleges and other vocational training institutions. “We believe we will get better value if these funds are channelled to the existing technical and vocational training institutions.”
Myburgh added that chamber members also believed an increase in the VAT rate was justified. “Our 14 percent VAT rate is low by international standards and an increase in the rate would spread the tax burden more widely. It also makes sense to apply the taxes where the money is spent rather than where it is earned.”
Arthur Kamp, an investment economist at Sanlam Investments, said he expected some slippage in the key budget deficit and government debt ratio for 2016/17 over the medium term.
“The consolidated government spending ratio is excessive at 33 percent of gross domestic product (GDP), but the Treasury’s track record in containing expenditure has improved in recent years. Indeed, non-interest spending per capita has remained just about unchanged since fiscal year 2011/12 after adjusting for inflation. Considering these developments it is fair to argue some of the key building blocks are falling into place to return South Africa to fiscal sustainability.”
He said the fiscus still needed additional spending cuts and revenue increases over the next two fiscal years to stabilise the government’s debt ration at around 53 percent of GDP by 2018/19.
Rising debt
“We need to tackle debt. Debt stabilisation is critical since the consolidated fiscal data shows the rising debt level has resulted in a sharp increase in main Budget interest payments from R54.3 billion in 2008/09 when the debt ration was just 28.9 percent of GDP to an estimated R147.7bn in 2016/17 with a debt ratio of 50.9 percent of GDP, at end September 2016.”
He said he also expected personal income taxes to feature prominently.
FNB economist Mamello Matikinca, said data releases would take a back seat this week as the spotlight fell on Gordhan. He said Gordhan was faced with the unenviable task of treading the fine line between raising taxes and cutting expenditure without compromising economic growth while delicately navigating the political landscape.
“We expect a raft of tax increases aimed primarily at middle and higher income earners, administered through more aggressive fiscal drag as well as increases in the top marginal tax rate brackets. VAT and corporate income tax increases are highly unlikely, and we suspect the minister will keep these two options for the future.”
Some slippage in the key budget deficit and government debt ratio is expected.