Market analysts and economists have broadly welcomed the 2020 Budget tabled by Finance Minister Tito Mboweni in Parliament on 26 February. They are viewing it as being unexpectedly positive for business and the economy while warning that disciplined implementation will be the key.
“There is much to welcome in this Budget, particularly action on youth unemployment [and] some fair steps in creating a fair tax system in support for beleaguered state-owned enterprises,” said Ekow Eghan, SA tax leader at professional services firm Ernst & Young (EY).
Budget for business and trade
“This Budget clearly acknowledges that the government has a central role to play in turning SA into a competitive economy and that it is willing to do so. This was also a budget for business and a budget for trade.”
Eghan added: “It also helps with the broader message that South Africa is open for business. We welcome this budget and believe that it enhances immediate prospects for economic recovery and the economy’s long-term growth prospects. It was a very necessary, credible, path to fiscal and monetary balance and we thank the minister for delivering it.”
Investec chief economist Annabel Bishop noted: “The 2020 Budget finally delivered the actual cuts to its expenditure projections (R156.1 billion) that have long been deemed necessary, although the downwards adjustments are not as large as are needed, given also the downward revisions to revenue projections in earlier years, which helps debt projections remain unchanged at above 71% of GDP in 2022/2023.”
North-West University (NWU) Business School economist Prof Raymond Parsons said that, given the consequent pressure on state revenues, the substantial Budget commitment to reduce the public sector wage bill is a very important economic and political step towards creating a better balance between government current spending and its investment outlays.
“It is welcome that there have been no personal or corporate tax increases, and in fact some tax reductions, as a recognition of the fact that diminishing returns have set in from expecting more revenue from yet higher taxes.”
Dependant on successful and tangible implementation of the planned policy steps
He said the impact of the various proposed Budget remedies will continue to depend heavily on the successful and tangible implementation of the planned policy steps, including the turnaround in key dysfunctional state-owned enterprises, such as Eskom.
Lack of security in energy supply was recognized by the finance minister as a major constraint on growth.
“The downside risk in the Budget nonetheless remains the growth in public debt and the need for continued fiscal discipline, given the deteriorating debt arithmetic strongly reflected in the Budget numbers. This trend continues to present policy makers with difficult choices, but choices that cannot be avoided or easily postponed,” Parsons noted.
Widening deficit means fiscal situation remains dire
But Bianca Botes, a treasury partner at Peregrine Treasury Solutions, issued a warning that South Africa’s fiscal situation remains dire as the deficit widens to its highest level in 18 years.
“While government is planning to slash the wage bill by R156 billion over next three years, which will go a long way to ensure fiscal sustainability, the actual ability to affect this remains to be seen,” she said.