Zuma pledges may mean more tax

Johannesburg - The state of the nation address contains some important economic and budget implications, Peter Attard Montalto, emerging markets economist at Nomura International, said on Thursday.

Attard Montalto noted that the President Jacob Zuma's address contained a reaffirmation of the government's concentration on jobs, industrial development and education - the ANC's developmental state agenda.

He noted that there are at least R50bn of additional spending commitments in the coming budget year from the speech for extra infrastructure build, commitments in expanding education and the provision of support for basic housing loans.

"There seems then to be clear upside risks to the budget deficit unless additional tax measures are taken, or additional efficiency savings are found."

He noted further budget risks emanate from the hint that the government is going to move forward with national healthcare insurance.

"Overall I think tax hikes are now increasingly likely in the coming few years in order to be able to fund all this," he said.

He added that the key implication of the speech is that the new industrial policy from department of trade and industry is forthcoming very soon.

"The implications of that announcement are significant and in many ways more important for creating jobs and boosting potential growth than any direct interventions that are made."

Zuma claimed in the speech that he managed to practically meet his job creation target of 500 000 new jobs for last year.

"I do not understand this - the data does not appear to bear this out as employment dropped by 870 000 and unemployment rose by 292 000. This part of the speech was a distraction from additional measures that were needed." he said.

However, the announcement of a new independent electricity network operator is very welcome to ensure energy security, he said. Zuma announced that a separate system operator will take over the running of the electricity distribution network (the grid) independently of Eskom.

The new operator will be in charge of buying electricity supplies from all generators - both Eskom and the independent producers.

There will also be a new BBBEE (broad based black economic empowerment) committee to reform the policy. Ensuring a more nimble policy that encouraged wider job creation and entrepreneurialism would certainly be welcome, Attard Montalto added.

"It was good that there was further mention of public sector efficiency, but we need an order of magnitude increase in the savings that are made and look to the budget next week for more on this," he concluded.

"Overall I think the speech was pretty unsurprising and there was little new policy on the economic front with still no real consensus about the need for fundamental economic change in the country and upside risks to budget. We must await the new industrial policy to see what that can deliver."

- I-Net Bridge