Budget SpeechFinancial Planning

ABSA budget commentary


Says Craig Pheiffer: Absa Chief Investment Strategist, WIMI

  • The 2018/19 budget deficit of 4,3% widens to 4,5% next year and reduces to 4,3% and 4,0% over the following two fiscal years – this is more than expected but is front-loaded to reflect the minister’s focus on planting the seeds now in order to reap greater rewards over the medium to longer-term.
  • Funding more than a decade of budget deficits has increased our outstanding level of debt and the associated debt servicing costs. Debt servicing costs are budgeted to grow at a compound annual growth rate of 10,7% – the fastest growing line item in the national budget.
  • By 2021/22 debt servicing costs (R247,4bn) grow to be the third-largest item in the budget – bigger than Community Development (R243,7bn), Economic Development (R235,9bn) and Peace and Security (R233,0bn).
  • Households will be impacted by unchanged tax brackets – any added income in the new fiscal year from bonuses or salary increases will be taxed at the taxpayer’s marginal rate.
  • The Budget is based on six fundamental principles that talk to all of the current key economic issues – growing the economy at a faster pace, increasing tax collection, keeping expenditure in check, stabilising and reducing debt, reconfiguring state-owned enterprises and managing the public sector wage bill.
  • The Minister stressed that the Budget was prepared with the best interests of the nation in mind. We all need to work together and, to this end, the Minster held back on increasing tax brackets to generate R12,8bn extra for the fiscus.

Says Kwaku Koranteng, Head: Institutional, Absa Multi-Management

  • It is a Budget that tried to appease conflicting interests in a difficult fiscal and economic environment. Since the mid-term Budget Speech, National Treasury has revised economic growth projections downwards, which will have an impact on potential revenue collection, while deficits also widened slightly. The projected debt-to-GDP ratio has worsened marginally since last year.
  • Minister Mboweni was quite firm on Eskom, not committing government to absorb its debt. While terms of providing loan guarantees to state-owned entities (SOEs) were tightened, insufficient detail has been provided to know if these measures will be enough to address the challenges at ailing SOEs.
  • There will be a tightening of operations at the South Africa Revenue Service, with the appointment of a new Commissioner and units focusing on corporates and illicit economy which will hopefully lead to improved revenue collection. Most of the expenditure reduction will come via the public sector wage bill. Members of Parliament and provincial legislatures as well as executives at public entities will not receive a salary increase this financial year. While this is a step in a positive direction, is it enough?
  • All in all, it is not a Budget that is strong enough to improve our credit ratings.

Says Dumisani Bengu, Head of Wholesale Retail and Franchise, RBB SA, Absa Group:  

  • The Jobs fund, which is a vital complement to private sector job creation shall be increased over the next three years to R1.1 billion as mentioned in the Budget speech today. This will go a long way in supporting SMME growth by solving the problem of lack of collateral and own contribution from entrepreneurs.
  • In the Budget speech today, R481.6 million has been allocated to the Small Enterprise Development Agency to expand the small business incubation programme. This is key to improve entrepreneurship activity in the country thus contributing to economic growth and employment creation.
  • R19.8 billion was allocated for industrial business incentives, of which R600 million has gone to the clothing and textile competitiveness programme to support 35 500 existing jobs and create about 25 000 new jobs over the next three years. This is a welcome development as the South African textile industry has been under pressure from import influx and resulted in loss of jobs in the sector. This incentive should help make the sector competitive again and hopefully save jobs and generate new ones.

Says Wessel Lemmer, Senior Agricultural Economist, RBB SA, Absa Group:  

  • Reprioritizing resources towards the Presidents’ Infrastructure Fund and away from the Wage Bill indicates Governments’ commitment to improve economic growth and much needed infrastructure development to increase South Africa’s global competitiveness.

Says Hamlet Hlomendlini, Agri-Specialist: Absa Retail and Business Banking

  • While the Land Bank might have paid off its government debt, if it aims to support smallholder farmers as demanded by its mandate – as indicated in the Budget of 2019 – it will have to consider changing its financing model.
  • Given agriculture’s importance to the South African economy, leveraging partnerships, as indicated in the Budget, will go a long way to benefit the sector. However, this should not be limited to financial institutions – government and the industry as a whole should form part of this partnership.

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