Budget Speech - Key points
- Within the constraints of reduced overall economic growth compared with earlier forecasts and an associated reduction in budgeted revenue growth, the 2015 Budget probably contains just sufficient fiscal austerity to appease the ratings agencies and prevent a further downward revision of South Africa's credit rating into "junk" status. In turn, if the budgetary parameters are adhered to, this should prevent economic growth from falling too far and the country from entering into a debt trap.
- Although the budget deficit for 2015/16 has been revised upwards to -3.9% of GDP from -3.6% of GDP as budgeted for in October's Medium-Term Budget Policy Statement (MTBPS), the deficits for the ensuing two years have been retained, declining to -2.5% of GDP in 2017/18. It is this more than anything which ought to encourage ratings agencies to refrain from downgrading the country's credit rating later this year on condition that the downwardly revised forecast GDP growth rates of 2.0% for 2015 and 2.4% for 2016 do not turn out to be too optimistic because of an increased rate of electricity outages or a public sector wage strike.
- The 2015 Budget was expected to herald a significant increase in taxation for the first time in more than a decade and so it turned out to be. The government split the burden almost equally between a rise in the fuel levy significantly above inflation and an increase of 1% in the average tax rate of most individuals. Somewhat surprisingly, no increase in taxes on wealth was forthcoming. The increase in the real burden of taxation is arguably one of the reasons as to why National Treasury reduced its forecast growth for 2015. Unfortunately, closer analysis reveals that there are further tax increases to come in the next two years.
- On the expenditure front, real non-interest spending is set to rise by 2% in the year ahead, but then to decline to around zero in the ensuing two years. This does not augur well for any significant pickup in growth in later years.
- Nonetheless, the semblance of stability in the fiscal space in South Africa exuded by this Budget should be helpful in preventing any undue collapse in economic growth. Instead, it feeds the notion of the economy being caught in a "muddling along" trap of economic growth hovering just above 2% in the next few years and this on condition of no nasty surprises.
Source : Econometrix 26/02/2015