Budget hemmed by slow growth
Gordhan’s options ‘limited’ – analysts
SLOW growth, a poor economic outlook and a looming credit ratings decision left Finance Minister Pravin Gordhan with little choice but to hike taxes, according to analysts. However, the tax rise spells bad news for consumers and small businesses.
Old Mutual Investment Group economist Johann Els said the impact of slower growth on tax revenues was substantial, but fortunately National Treasury had managed to keep spending under control.
Els said it was a relatively solid MidTerm Budget Policy Statement, given the pressures facing Treasury.
“A tighter stance might have been too damaging to the economy. It remains to be seen how this will influence the country’s ratings. Ratings agencies not only look at the budget, but also economic growth. S&P (Standard & Poor’s) are also waiting for announcements regarding a national minimum wage and a secret strike ballot.”
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, said Gordhan had been handed the proverbial “sow’s ear” by government and told to turn it into a publicly palatable silk purse.
Geffen said it would have taken a magic wand for Gordhan to have been able to present anything other than a dismal economic outlook in his mini budget speech.
“We cannot create investor confidence without, among other things, energy security, and cash-strapped South Africans can ill afford the greater tax burden they’ll be facing next year. “
Janine Myburgh, president of the Cape Chamber of Commerce and Industry, said South Africa would have to brace itself for tax increases next year.
“The ideal method would be an increase in VAT (value added tax) but there would be strong objections from unions.”
Myburgh said the chamber was pleased to see Gordhan recognised low confidence as an issue that was constraining private sector investment, but that he was still keen for private sector partnerships in infrastructure developments.
“We are encouraged that the government plans to address legislative and regulatory uncertainties that hold back investment in mining, agriculture and key technology sectors as well as essential labour market reforms. We have been disappointed before, but we hope the urgency of our debt credit rating problems will see fresh efforts to remove these impediments to economic growth.’
Damon Sivitilli, head of marketing at Cape Town debt counselling firm, DebtBusters, said South Africa was at a stage where economic growth was slow. He said the recent increases in fuel and food prices had harmed the economy at the micro and macro levels.
Savitilli said South Africa’s continued slow economic growth would have an increasingly negative impact on the average consumer as their monthly living expenses and debt repayments continued to rise while their income levels remain unchanged.
David Crosoer, executive of research and investments at PPS Investments, said South Africa was facing tough choices even if economic growth lived up to National Treasury’s fairly optimistic assumptions.
“Pravin Gordhan might have bought South Africa some time in his presidential-sounding medium term budget speech, but the jury is still out whether we will be able to make good use of it. Aptly, Gordhan appeared at times to be appealing as much to his colleagues as to his wider constituency of disgruntled citizens and nervous rating agencies.”
Pieter du Toit, chief executive of FNB Investments, said the projected half a percentage GDP growth compelled the government to find alternative sources of income, meaning certain income brackets could see tax hikes in next year’s National Budget.
“Household budgets are undeniably taking strain, but if consumers can take advantage of small windows of opportunities such as saving their annual bonus, they can develop sustainable momentum towards securing a better financial future. Consumers needed to move away from the culture of consumption.”