All eyes will be on Finance Minister Trevor Manuel on Tuesday when he unveils the Treasury’s three-year spending plans, giving taxpayers their first sight of what to expect in next year’s Budget.
Economists in particular will be listening carefully for an announcement on inflation targeting, as South Africans reel under four interest rate hikes this year. The central bank has used rates to try keep prices in check, placing the tough inflation targets it is trying to achieve under the spotlight.
The Consumer Price Index excluding mortgage interest (CPIX) increased to 11,8% in September compared to the three-to-six percent target band for this year and next year, largely due to a dramatic fall in the value of the rand in 2001.
Manuel’s Medium Term Budget Policy Statement (MTBPS) is expected to include higher inflation forecasts, while the South African Revenue Service (Sars) is again tipped to outstrip its tax collection targets. This could pave the way for further tax cuts in the 2003/04 Budget.
The MTBPS will show government’s hand on spending priorities for the next three years, and include new macro-economic projections and spending trends for both national and provincial government. It will also show a revised fiscal framework — setting out levels of taxation, public spending and borrowing — and the impact of current spending on service delivery.
Old Mutual Asset Managers’ chief economist Rian le Roux said he would be looking for direction from government on inflation.
”That will be almost entirely the key focus this year.” Revenue collection by Sars was again above expectation, probably leading to tax cuts next year.
However, the relief would probably be more directed towards corporates and retirement funds, partly due to the impact higher personal disposable income could have in exacerbating already-high inflation, Le Roux said.
Jac Laubscher of Sanlam Investment Managers agreed that the main focus would be on price increases.
”What will be very interesting to hear is whether there is any shift regarding policy priorities… perhaps more of a recognition of the sacrifices if we want to do it (bring inflation down) quickly, and of course, inflation targeting.
”The minister can’t say nothing about that,” he said.
Manuel declined to answer a question on this in the National Assembly last week, saying the issue would be addressed comprehensively in the MTBPS.
The minister suggested a wider debate on inflation targeting once Statistics South Africa completed a study on the country’s target measure, CPIX. The SA Reserve Bank’s inflation monitor strips out mortgage costs, but includes volatile food and energy prices.
Laubscher said although the statistics authority was still working on the study, this did not preclude Manuel adjusting the target levels.
The central bank would not meet the band in 2003 or the lower target of three to five percent in 2004.
”I don’t think we should bluff ourselves.”
He also expected a revision of the state’s fiscal numbers, including an indication of how willing the government was to translate increased tax collection into a lower budget deficit.
The economic growth forecast — of 3,5% for 2003 — were not expected to change much.
On the revenue side, there should be new figures on anticipated privatisation proceeds, while expenditure should reflect the increased allocations for welfare grants, and a higher-than-expected civil service wage increase.
”Even if we list (telecoms giant Telkom) this financial year, looking at the market, they will have to revise the expected proceeds downwards.” Telkom is due to be partially listed on the local and New York bourses before the end of March next year.
Other issues to look out for were a possible move on exchange controls following the completion of the Rand Commission of Inquiry and the findings of a report on taxation in the retirement industry, he said.
MMS International analyst George Glynos said the key factors for the market were whether there would be changes to CPIX and whether privatisation was still on track.
Another important issue was broad movement on revenue and spending, but more particularly, its impact on the budget deficit, he said.
The MTBPS is to be unveiled in the National Assembly shortly after 2pm on Tuesday. – Sapa