Guiding consumers since 2009

5 Things we could expect from the medium term budget speech

By Angelique Ruzicka

To say that Finance Minister, Pravin Gordhan, has been through a bit of a roller coaster ride is probably a bit of an understatement. He’s been harassed by the Hawks, which investigates organised and economic crime, corruption and other grave criminal matters referred to it by the South African Police Service and the President. As it stands the minister is currently facing corruption charges for a rogue unit he set up at the South African Revenue Service.

All eyes will be on Gordhan as he tries to deliver the Medium-term Budget Policy Statement  (MTBPS) amid the possibility of South Africa being downgraded to junk status (or a couple of notches below that even) and allays fears about where the economy is heading following some tumultuous events that were not completely in his control, being: the #FeesMustFall movement and the continuing drought which is wreaking havoc on food prices and services.

1. More taxes?

South Africa generates most of its earnings from taxpayers so a hike in taxes could be on the cards. “Given that growth in 2016 will come in under Treasury’s previous projection of 0.9%, government will also have to think about raising certain taxes (such as VAT) or introducing new ones (such as a wealth tax),” says Mercantile Bank consulting economist, Trudi Makhaya.

But whether they will be cast in stone is anyone’s guess. “There might be some hints regarding tax changes – which we can expect to mainly target the top income groups – through a lack of fiscal drag relief, increased dividend and/or capital gains taxes, and maybe even another top marginal rate,” explains Johann Els, senior economist at the Old Mutual Investment Group.

2. A weigh in on FeesMustFall?

Students have had enough of paying through the nose for high tertiary education costs and it shows. Riots, fights on campus with police and lectures has resulted in an almost nationwide shut down.

It will be interesting to see how Gordhan will struggle with adhering to the expenditure ceiling while trying to scrape together money on supporting the FeesMustFall movement if the students do indeed get their way. As it stands, most universities haven’t formed an agreement with students yet. But just this week, Tschwane University of Technology (TUT) students struck an agreement with the university’s council that fees would not rise in 2017
. If other universities follow suit the money would have to come from elsewhere – possibly government.

Peter Brooke, fund manager of the Old Mutual Flexible Fund, points out that Gordhan will have the difficult task of finding an acceptable balance between the seemingly conflicting priorities of the rating agencies and the public sector. “In spite of growing demands for additional allocations of funds, such as the widely recognised need to increase the subsidy to higher education institutions, ratings agencies will be focussed on whether Treasury has managed to control spending,” explains Brooke. 

3. Addressing how he will deal with State Owned Enterprises (SOEs)

If you look at most of the SOEs in South Africa they’ve had some kind of bailout from government in the past, including South African Airways, PRASA, Eskom and the Post Office to name but a few. Another significant interest to ratings agencies in the MTBPS lies in the status of SOEs, continues Brooke. “The growing liability of state-owned enterprises is understandably a major focus point, as potential losses directly impact the amount of pressure placed on the fiscus.” 

4. A review on growth?

In February, Treasury projected that the economy will grow by 0.9% in 2016, 1.7% in 2017 and 2.4% in 2018. But there’s talk that we won’t reach these numbers and if that happens, Treasury will have to adjust expectations. “The medium term budget statement will provide a revised view of National Treasury’s estimate for growth. This not only provides insight into how the economy is likely to evolve, but also has implications for whether government can meet its deficit and debt projections, which are calculated as a proportion of GDP,” says Makhaya.

5. Whether there will be any adjustments to how small enterprises are funded

The small business department has a relatively modest budget of R3.5 billion. However it has received additional funding in the 2016/17 budget (R475m above what had been allocated for the medium term).

“Mid-term adjustments to the budget are usually small. However, they provide some signals as to what is getting done, what isn’t and the unanticipated developments,” says Makhaya.

Will there be revelations about whether government has kept costs down?

In February, various measures to contain costs were announced. “These were to be achieved by restrictions on new public sector employment, better budgeting for capital projects, more efficient and clean procurement, amongst other measures. Savings made on this front are not only good for the fiscus, but indicate the degree to which National Treasury enjoys support across government,” points out Makhaya. 

Undeniably, the upcoming MTBPS is one of the most eagerly anticipated in SA’s democratic history. “This is arguably one of the most significant mid-term policy statements to be delivered in South Africa yet and we expect that Treasury will do their utmost to direct the budget towards a position where a ratings downgrade can be averted. However, whether their efforts, in the current uncertain political environment, will be enough remains to be seen,” concludes Els.  

Recent Articles

Featured Scared to get a personal loan? Find out the facts first

Taking out a personal loan can be daunting. When you borrow a large sum of money, you may fret over whether you’ve done the right thing and whether you’ll manage to pay it off. But sometimes the best way to deal with fears is to face them head-on.

5 Ways to borrow: Choose carefully

There are many ways to obtain credit. It’s up to you to choose which form is suitable for your needs. But before you make that choice, it’s important to weigh the pros and cons of each.

Four steps to rethinking your budget

We all think about budgeting at the end of each month. But before we know it, the new month has started. When last did you actually sit down and consider your spending habits?

Why can fund managers only invest 30% of pension funds offshore?

When you invest in your pension fund or retirement annuity, it will be placed in various asset classes. Of this, you cannot invest more than 30% of your retirement abroad. We find out why.


Clicks Covid antibody test for R199

Price: R199
When: Daily
Where: Nationwide

2 Steaks for the price of 1 at Tiger’s Milk

Price: From R159
When: Thursdays
Where: Cape Town

Da Vinci's Monday Wings Special

Price: R145
When: Mondays
Where: Cape Town

Latest Guide

Guide to debt rehabilitation solutions