Another tough balancing act for Mboweni: Nkomo

Be crystal clear in your plans, that’s the sentiments from economists to Finance Minister Tito Mboweni ahead of his much-anticipated budget speech on Wednesday.

Mboweni will deliver the speech at the time when the country is experiencing sluggish economic growth, the economy is on the verge of a complete downgrade by all three major credit rating agencies.

Much of the focus from Mboweni’s speech will centre of his pronouncements on government plans to get money, particularly for the NHI.

Inkunzi Investments Chief Executive Officer (CEO) Owen Nkomo anticipates that nothing drastic will to come out of the speech.

“We believe that we’re still going to be dilly-dallying around in terms of how to fix this difficult position that we have found ourselves in. I do not expect any major concrete decisions to come through. I expect minor changes to be made. And I think that that is quite unfortunate because it will only make things worse for us,” says Nkomo.

AUDIO: Owen Nkomo on the outcome out of the speech

‘Same as previous year’

The 2020 Budget will be the same as that of the previous year, according to Nkomo. “From the budget – expect more of last year, given that the budget was a balancing act between revenues that come in and expenses that go out from that.” Suggestions are that if there is any change to be anticipated is the backdrop that Mboweni would have been under more pressure compared to when he delivered his median budget in 2019.

This budget, however, presents its own complexities suggests Nkomo “It’s going to be another tough balancing act.”

Rating agencies will keep a hawk-eye as the minister stands before parliament, having recently cut  South Africa’s growth forecast, Moody’s remains the only agency to deem the countries credit rating as “junk”.

According to Moody’s, the economy remains stuck in low gear due to lacklustre domestic private-sector demand. In a research report, Moody’s also attributed the scaled-down forecast to the detrimental impact of the continuing load shedding on the country’s manufacturing and mining activity.

The rating agency left South Africa on the verge of “junk” status last year after it revised the outlook on the country’s last investment-grade credit rating to negative.

Mboweni’s speech is seen as an important event leading up to the ratings agency’s next scheduled review of the country next month.

The 0.7% growth forecast by Moody’s adds weight to Mboweni’s pursuit of more money for the state.

‘Negative growth’

South Africa’s economy continues to receive “negative growth” forecasts from various corners. The World Bank earlier cut economic growth to 0.9%  for 2020 due to electricity concerns. The bank cited electricity supply and infrastructure constraints as impediments to domestic growth.

source: tradingeconomics.com

It is without a doubt that the minister faces an unenviable task to try to increase revenue in the economy.

Tax specialist Joon Chong highlights that an increase in Capital Gains Tax (CGT) could be insight for the minister.

“A potential area that could bring in more revenue would be the CGT inclusion rate for individuals. Currently, the rate is at 40% and for companies at 80%. So there could potentially be the CGT inclusion rate for individuals could potentially increase to perhaps 60% or perhaps even to make it the same as 80%, the same as companies.”

The majority of South Africans are keen to find out how Mboweni’s pronouncements will affect their pockets, labour unions will also anxiously monitor the speech.

Joon suggests that pursuing tax increases does not hit all sectors of the economy equally.

“Other taxes that could come in, could be tabling of a wealth tax… And perhaps what would be an easy source of revenue, although not a popular source of revenue at all, would be half a percent increase in VAT or even a 1 percent increase in VAT. The difficult thing about that is it’s very unpopular.  It does not impact all sectors of the economy equally. And it is a year where the election is imminent. So all in all, increasing revenue is vitally important and this has to be balanced with incentives and measures to promote growth in the economy.”

AUDIO: Tax Specialist Joon Chong on pursuing tax increases

Source: SABC News (sabcnews.com)