The National Budget Speech 2017

The Finance Minister, Mr Pravin Gordhan, is set to deliver South Africa’s next budget speech on Wednesday, the 22^nd of February 2017.

The still uncertain global economic climate and slow domestic growth, and the dark cloud of a possible ratings downgrade mid-year, present a once again difficult job for the Finance minister.

The slowdown in growth means a slower collection of revenue and in turn the path of fiscal consolidation will need to be continued, implemented and furthered from the objectives laid out in the Medium Term Budget Speech. This will essentially be done through tax collection and further tightening of government expenditure.

Tax & Levy Expectations

Expectations are for the Finance Minister to look to raise further revenue through a combination of personal income tax, an additional fuel levy, corporate capital gains tax and excise taxes in the form of “Sin Taxes”, sugar taxes on beverages and possibly even carbon taxes.

A marginal personal tax increase is likely to manifest in affecting higher income groups more than middle income groups, while maintaining relief for lower income groups.

 A fuel levy increase, should it occur, is likely to be marginal in lieu of the inflationary effects of the sudden rise in the underlying commodities pricing.

A corporate capital gains tax increase appears more likely than a corporate income tax increase as the latter appears relatively high already, when compared to the global market place.

The recently proposed sugar tax on beverages is supposed to be implemented soon, although might find a different form laid out in the Budget Speech than what was previously proposed, after industry suggestions that the implied taxes could have the undesired result of employment loss.

Increasing Value added tax (VAT) is an option, although for now, appears unlikely as its impact is known to weigh disproportionately on the poor to middle class populous. There are however some suggestions that this might be a tool considered in future to fund government plans that should benefit lower income groups, such as funding the next phases of the National Health Insurance plans.

Expenditure Cuts

Furthering the fiscal consolidation cause, Mr Gordhan will need to show continuity in his attempts of trying reign in wasteful spend and corruption, whilst also maintaining the revised expenditure ceiling laid out in the Medium Term Budget Speech.

Ratings Agencies & The Rand

There is no doubt that ratings agencies will keep a keen eye on the upcoming budget speech on Wednesday, with the S&P and Fitch set to review the country’s investment grade status in June this year. Mr Gordhan has done well under the circumstances thus far, in appeasing these agencies that South Africa remains committed in its path of improvement. In truth, the success of the budget laid out and in turn ratings decisions to follow, will be determined by the future of economic growth within the country, and for that we remain dependent on an uncertain the global market place as well. In the short term however, Mr Gordhan’s commitment to the economy does seem to inspire confidence which is likely to provide a domestic catalyst for some currency strength, the extent of which would be limited by macro events.