As South Africa’s economic growth slows and inflation heats up, Finance Minister Trevor Manuel will present a medium-term budget on Tuesday with decidedly less to smile about than six months ago.
While analysts expect Manuel to be more cautious in his revenue predictions, they believe past prudence and a R5-billion budget surplus announced in February has left him with enough room for manoeuvre.
“We are certainly facing slower growth. GDP [gross domestic product] growth is expected to be well below 4% next year,” said T-Sec economist Mike Schussler.
“This is going to change things. The minister is going to be in a slightly more difficult position.”
As a result, Manuel is apt to cut his predictions for 2008/09 revenue income.
“The revenue prediction is likely to be conservative,” agreed economist Jac Laubscher of financial services group Sanlam. “But the minister won’t need to cut back on spending plans. He has enough fuel in the tank.”
Presenting his annual budget in February, Manuel posted the country’s first budget surplus in recent memory and forecast 5% annual economic growth to the end of the decade.
He also envisaged another surplus for the coming fiscal year.
But GDP growth of 5,6% in the final quarter of 2006, and 5% for the year overall, has since slowed to 4,5% in the second quarter of 2007.
And consumer inflation minus mortgage costs (CPIX) quickened to 6,7% in September.
The CPIX figure is used by South Africa’s central bank to measure inflation performance against the target of between 3% and 6%.
With CPIX consistently exceeding the target since April, up from a low of 3,1% in February 2005, the Reserve Bank has hiked its prime lending rate by a total 3,5% since June last year to curb spiralling inflation.
Schussler predicts Manuel might shift his spending emphasis away from social welfare to investments for economic growth, like transport infrastructure.
He also hoped some money would go towards the erection of new power stations to boost the production-side of the economy.
Laubscher said it appeared inevitable that the government would have to push money into parastatals like electricity provider Eskom and transport entity Transnet to prevent the cost of much-needed infrastructure expansion being passed on to consumers — thus also feeding inflation.
“Economic spending has to grow faster than social spending,” he argued.
Nico Kelder of asset management company Efficient Group said Manuel had no major concerns as revenue, though projected to be somewhat lower, was still growing faster than inflation.
“The minister himself had predicted we will see slower economic growth by this time.
“While the economic circumstances might be somewhat more difficult, he has budgeted well for it and has done well in earlier budgets to resist the temptation of cutting taxes and hiking spending to unsustainable levels.”
The main opposition Democratic Alliance urged Manuel to cut company taxes, give more money for healthcare, education and skills development and reduce the state’s exposure to loss-making parastatals.
Such steps would boost job-creating economic growth, said DA finance spokesperson Kobus Marais.
Failure to do so, he added, would testify to “a government that has become a sitting duck, entrapped by the demands of the populist left … ahead of the governing party’s December national conference and leadership elections”.
The ruling African National Congress (ANC) goes to its elective conference at year-end with President Thabo Mbeki likely to seek a third term at the helm of the party.
Seen as a shrewd administrator running a successful economy, Mbeki is often criticised for being too business-friendly by the ANC’s left-wing allies who are backing ANC deputy leader Jacob Zuma. — AFP