South African taxpayers should brace themselves for scant relief when the Budget is announced in February next year as analysts feel Finance Minister Trevor Manuel is likely to be very cautious due to the cyclical risks underpinning the economy.
Analysts also feel that the Budget needs to be better harnessed to improve effective expenditure and to be more supportive of the macro economy.
Economist from Efficient Group, Fanie Joubert, notes that on expectations for a surplus over the next three years, South Africans should “not expect any more tax cuts”.
“It should be a bit more restrictive. The minister has said that a lot of the strong revenue is cyclical, so it might not necessarily continue,” he said.
“They will probably be more cautious,” he points out.
As for challenges, Joubert highlights effective expenditure.
“There is a lot of money not being spent and then when it is, not on the right things,” he notes.
Joubert concludes that it would also be nice for the different departments to classify their audit reports and “get it right” by having a better accounting for all the spending.
Sanlam’s group economist, Jac Laubscher, says due to what he sees as the greatest macroeconomic policy challenge since the rand crisis of 2001 it would be preferable for fiscal policy to “bear more of the burden” to ensure macroeconomic stability and thus relieve the upward pressure on interest rates.
“Fiscal policy was indeed recently tightened with the express aim of supporting monetary policy by behaving anti-cyclically. However, the question is whether this is enough — the budget surpluses of approximately 0,5% of GDP expected for the current fiscal year and the following three years might not be enough, and are also the result of upward revisions of the revenue projections instead of reduced expenditure or higher taxation. The cyclically adjusted fiscal balance is still in deficit,” he notes.
Laubscher emphasises that for fiscal policy to make a “real difference” it will probably require a budget surplus of at least 3% of GDP, with a concomitant increase in government savings.
The only way of achieving this is by raising taxes, preferably VAT, temporarily. However, an increase of one percentage point in the VAT rate is equal to about 0,5% of GDP — in other words, VAT would have to be hiked by five percentage points in order to increase the budget surplus by 2,5% of GDP!”
In reality, he says, this is not politically viable, which means that monetary policy will still have to carry most of the burden.
“However, SA should strive for a more flexible fiscal policy in spite of political opposition.”
South Africa’s next Budget is expected to be presented to Parliament on February 20. – I-Net Bridge