The SA Daily
27 February 2020
Budget taking the right tack
Shireen Darmalingam
- Finance Minister Mboweni has tabled Budget 2020. The main budget deficit is estimated at 6.5% of GDP in FY19/20 and 6.8% in FY20/21 (a 30-year high). Consolidation thereafter is slower than we had hoped; deficits of 6.4% in FY21/22 and 5.9% in FY22/23 have been forecast. In its fiscal consolidation efforts, Treasury has taken a most cautious approach to avoid further weighing on SA’s weak economic growth. GDP growth is forecast at 0.9% in 2020, 1.3% in 2021, and 1.6% in 2022. However, the known downside risks persist by way of Eskom’s ongoing power cuts and the Covid-19 outbreak. The minister noted no major tax increases in this Budget in order to support growth. He also announced some personal income tax relief, calling the SA income tax system “progressive”. Excise duties were increased in line with inflation; and, the fuel levy was increased by 25c/l.
- Fiscal debt, however, is not projected to stabilise in the medium term — even should the projected consolidation materialise. The gross debt-to-GDP ratio was increased to 71.6% by FY22/23 (from 61.6% in FY19/20). Much of Minister Mboweni’s focus was on the wage bill; government plans to cut R160bn from state wages over three years but the risks to such savings over this time are to the downside.
- This Budget fails to change our expectation that Moody’s will ultimately strip SA of what is now our sole remaining investment-grade rating. However, the timing of a downgrade is difficult to predict at this stage.
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