
Finance Minister Tito Mboweni is set to deliver a budget with very little breathing room on Wednesday 26 February, the Nedbank Group Economic Unit says.
Further downward revisions are likely to National Treasury’s economic growth forecasts, given the resumption of load‐shedding for an extended, yet undefined, period, the damage done to confidence and service delivery through years of government misspending, inertia and widespread corruption as well as mounting pressures on company profits and household finances.
“This leaves the Finance Minister and National Treasury in the unenviable position of finding some acceptable compromise between visibly advancing fiscal consolidation while also maintaining essential services in the face of increased unemployment and rising dependency,” Nedbank states.
The key to improving both fiscal and economic prospects is to deregulate the electricity sector and implement other essential structural reforms, it adds.
The budget deficit for 2019/20 is forecast to be about 6,2% of GDP, substantially worse than the 2019 National Budget’s estimate of 4,5% and the upwardly revised 5,9% estimate of the Medium Term Budget Policy Statement (MTBPS). “The outcome reflects the impact of significant revenue shortfalls, due to much weaker than expected economic growth, and sharply higher expenditure, caused by the additional bailout of Eskom, SAA and other loss‐making SOEs.”
Nedbank believes that National Treasury will probably set the budget deficits for 2020/21 and 2021/22 at slightly higher levels than the 6,5% and 6,2% of GDP reflected in the MTBPS. “Our forecasts are for around 6,8% and 6,5% respectively. Meaningful consolidation is again expected to be postponed until the final year of the budgeting period.”
Little tax relief is expected. Personal, company and VAT tax rates are expected to remain unchanged and adjustments to tax thresholds will not fully compensate for inflation.