Market players on Budget Speech

What do market commentators expect from this afternoon’s Budget Speech?

The South African rand. Picture: Craig Wynn/EWN.

JOHANNESBURG - Ahead of this afternoon's Budget Speech by South African Finance Minister Pravin Gordhan, EWN business anchor Mashudu Masutha poses a number of questions to three market commentators.

The first up is South African Chamber of Commerce and Industry policy consultant Pietman Roos.

MM: What kind of Budget can we expect from Finance Minister Pravin Gordhan?

PR: We will most likely see emphasis on prudential fiscal policy in the coming budget. Even though there is pressure to increase social spending programmes, the fact that South Africa's budget deficit has been growing over the past few years indicates that this trend needs to be reversed. The National Treasury is definitely aware of the fact that foreign investors look at the budget deficit to GDP to see how stable the South African economy is. So in an effort to improve investor confidence, National Treasury should send out a clear signal to the rest of the world that they are working on reducing government debt."

MM: What would you like the Minister to say?

PR: A big news item over the past few months has been the weakened rand exchange rate. This has been a manifestation of global pressures and the view that many foreign investors have of South Africa. Unfortunately, investors look at the cold hard facts. They don't really care much about general commitments towards spending and improving the economy. So, in an effort to improve our external position and to stabilise our exchange rate, Gordhan will have to commit to reducing the deficit.

Next up is Nomura economist Peter Attard Montalto.

MM: What kind of Budget can we expect from Finance Minister Pravin Gordhan?

PAM: I think the Budget will be completely constrained from both sides. Firstly, the elections mean that tax hikes and expanding the revenue base is going to be impossible now. It will probably come after the election. Being able to offer additional spending in revenue items is constrained by the inability to really raise the amount of debt the Treasury can get out of the market at this time in current global market conditions.

MM: What would you like the Minister to say?

PAM: I think what we need is a clearer understanding of the philosophy of the government and the ANC beyond the election and where exactly they see the ability to create jobs and promote job creation. And a better understanding of exactly how the government thinks they can really improve growth. That has been lacking in the last couple of Budget statements and the State of the Nation Address.

MM: What should ordinary South Africans be looking out for in this Budget?

PAM: I think there will be a stay of execution for the average South African consumer. The usual sin taxes will go up somewhat and the personal tax base will probably stay roughly the same. It will really be after the election when we will start to see the difficult choices made, such as those around the National Health Insurance. That's when we will start seeing personal or employment taxes going up. The consumer will be slightly more heavily hit when the revenue base is widened.

And finally, Citi economist Gina Schoeman offers her views.

MM: What kind of Budget can we expect from Finance Minister Pravin Gordhan?

GS: The economy is looking a little bit weaker than I think Treasury was expecting in October last year. So the budget deficit is probably going to be slightly worse than expected. But what I would caution is that if you look further than 2014 to 2015 onwards, I wouldn't be too pessimistic and that's because at the time of the October budget Treasury was quite daring for 2015 onwards. Although there are weaknesses in the economy right now, we do have quite a couple of glimmers of hope at the end of the tunnel from 2015 onwards. One of them lies with simply getting more electricity into the country. If you get more electricity, you will produce more and if you produce more you will create more jobs. And those factors probably mean that the economy in general will be able to grow at a much greater rate than the 2.5 percent we have been experiencing in the last couple of years.

MM: What should ordinary South Africans be looking out for in this Budget?

GS: A topic that is getting a lot more airtime is what is happening with taxes and that's probably because in July last year the National Treasury gave permission to put together a tax committee to assess tax revenue to see if it was appropriate for the expenditure needed in the country. But it's a little bit too early at this stage and I am not expecting any significant announcements on taxes because the committee has only been around for about six months. It's probably going to take them about three years to actually hear anything on this. If anything, instead of higher taxes for the super wealthy people of South Africa, which is perhaps a likelihood in the future, I think what Treasury will do is to try and compensate individuals in South Africa. To actually give a bit of tax benefit to those consumers who have to deal with high costs. So those are possible positives for consumers when it comes to taxes.