"IT'S another cough and betaal budget." That was the intro a journalist from one of the more consumer-friendly dailies used when I was just a rookie reporter covering my third budget. I worked for a business daily, and we - of course - focused on the budget deficit.
Now, almost two decades later, I think my former colleague's intro will still apply to this week's Budget. True, a heavy smoker, he was referring to the "excessive" tax on tobacco. But there are other ways of coughing up too, and that's likely to be very much in evidence in this week's Budget.
I'm not just referring to sin taxes, although I do expect those to rise by a large margin. After all, Finance Minister Pravin Gordhan is desperate for more revenue, and the usual suspects - the smokers and drinkers - will be hit hard.
Business Unity SA (Busa) has called for a "no surprises Budget", but what might not startle Busa could surprise ordinary people and even the markets. I will try in this column to set out what I think the news in the Budget will be, and you will be able to judge if I've made a fool of myself with my predictions or not.
Let's start with issues affecting consumers directly. One of the main stories of this Budget is likely to be a carbon emissions tax on new vehicles, which could see a hefty increase in the price of cars that use a lot of petrol. Efficient Group economist Dawie Roodt says the prices of some gas guzzlers could soar by up to 10%.
Roodt says the carbon tax will be levied as a new tax within the taxes in the goods and services category of state revenue and will be CO2 emissions-based. The more the emissions, the higher the tax. If you want to drive a tank, you will cough up.
But drivers of ordinary vehicles will, of course, not get off scot free. As usual, the fuel levy will be increased. Given the desperation for revenue, it's likely that the increase will be fairly big.
Petrol price hike on cards
Roodt says motorists will have to brace themselves for a potential petrol price hike of 40 cents per litre, as he expects the fuel levy and the Road Accident Fund levies to go up by 20c/litre each.
Then there's the likelihood that taxpayers in higher income brackets will pay more tax. This will happen without the minister doing anything. If he keeps tax brackets and rates at the top end the way they are, inflation-related pay increases will bump taxpayers up into higher tax brackets and they will pay more tax. This is called fiscal drag, and is effectively an increase in tax by stealth.
Although economists expect some relief for fiscal drag, this will mostly be concentrated at the bottom end of income earners - in other words, members of trade federation Cosatu.
A very low figure - about R3bn - is being bandied about for individual income tax relief. This will be a far cry from last year's Budget, when Gordhan's predecessor Trevor Manuel tried to boost consumer spending with tax relief of R13.6bn for individuals.
There's also a possibility that some changes to Reserve Bank monetary policy framework will be announced, which could lead to another interest rate cut. But I dealt with that last week.
Those are the main issues affecting individuals directly. But even if you shut your ears at the mention of the Budget deficit, you have to realise that it does affect you and that it's very important that Gordhan shows this will be cut. This is what he promised in the Medium-term Budget Policy Statement, and he must stick to that promise.
Will Gordhan stick to his deficit guns?
The budget deficit is the shortfall between spending and revenue. The bigger the deficit, the more government has to borrow, which means more money in future going on interest, and not on infrastructure or social spending. If things get really bad, government gets into a situation where it borrows more and more simply to service its past debts.
That is why two indicators - the deficit as a percentage of gross domestic product (GDP) and government debt as a percentage of GDP - are such key measures of government's fiscal performance.
The international benchmark for deficits is 3% of GDP - but with the whole world sinking into crisis last year, this figure has been completely ignored as economies as diverse as the US and Greece racked up defcits of 12% of GDP. SA is in better shape. (But not much, if its whole public sector is taken into account. There's no space to go into that now.)
Gordhan in his mini-Budget promised that the 2009/2010 deficit will be 7.6% of GDP, and that this will be reduced to 6.2% in the coming fiscal year, 5% in the next and 4.2% in the one after that. The big question for Wednesday is whether he will stick to his promises.
Luckily for Gordhan, he based those pledges on a very conservative economic growth forecast of only 1.5% in this calendar year. Economic growth is important as it determines revenue as well as the GDP by which the deficit is divided to arrive at the deficit as a percentage of GDP.
Gordhan will revise growth upwards, and this will give him scope to revise revenue upwards. That will enable him to deal with the tsunami of government spending without tossing out his deficit promises. True, he may come up with 6.5% of GDP instead of 6.2% - but that won't make a big difference.
There are, however, all kinds of caveats and dangers to that neat solution, but there's no space to go into that now. And let's not quibble. Yes, it will be a "cough and betaal" budget, but it will probably please the markets without upsetting ANC voters - no mean feat indeed.
- Fin24.com