SARAH BULLEN, Cape Town | Wednesday 9.00am
POPULAR Finance Minister Trevor Manuel is sitting on a tight ship.
His ministry has reached its stated objectives in building economic policy credibility, it has enforced strict fiscal discipline, reigned in government spending to under 27% of GDP from nearly 29%, brought the Budget deficit to 2,6% of GDP and has significantly eased exchange controls.
Manuel further removed an element of surprise when he unveiled a forecast for 3,5% growth this year in his October 1999 Medium Term Budget Policy Statement.
Economists agree that the Budget is not expected to contain any surprises. But one area Manuel, a consummate showman prone to flashing his trademark Cheshire cat grin, could be unexpectedly magnanimous in is personal tax cuts.
Tax:
Business, economists and labour alike agree that the Budget should contain tax cuts. The past four years has seen the tax burden shift heavily to the individual to a point where it has become punitive, says Old Mutual Asset Management tax expert Abri Meiring. OMAM said it would like to see the top marginal tax rate for individuals to drop to 40% from 45%.
Exchange controls:
OMAM senior portfolio manager Alwyn van der Merwe said he expects to see very little change in exchange controls, stressing that government’s first priority will be to continue its reduction of its net oversold forward position. “The government has work very hard to reduce the NOFP,” Van der Merwe said, “they will not want to unwind that by allowing an outflow of capital that would come with a rapid relaxation of exchange controls.” Rand Merchant Bank agrees, discounting any bold move with exchange controls.
Inflation:
All eyes will be on Manuel’s announcement of the government’s new inflation target policy and he is expected to detail that actual inflation rate to be targeted, and what will be included in the measure to be used. Economist expect a figure called CPIX to be used. This includes everything in the consumer inflation except for mortgage interest rates. “An inflation target of 3,5% will please the equity markets,” said Van der Merwe. RMB said it expects a two to three year inflation target with no intermediate targets (similar to the way the Bank of England operates). It expects a target range of between 3% to 5% for CPIX to be reached by 2002/03.