Budget 2017: All eyes on fiscal management

2017-02-18 10:01

Cape Town - All eyes will be on government’s ability to stay the course on sound fiscal management in the upcoming national budget to be tabled by National Treasury on February 22, Sanisha Packirisamy, economist at Momentum Investments, said on Tuesday.

"Sound fiscal management and commitment to reform are necessary to allay rating agencies’ fears of political interference," she emphasised.

"With many indicators of economic development in SA falling short of its debt peer group, broad political or institutional stability and macro policy continuity remain key in preserving SA’s investment grade status."

Rising perceptions of political interference in key spheres of government institutions threaten SA’s macroeconomic performance, in her view.

"Continued political infighting could have a negative impact on SA’s current favourably-perceived governance indicators, the handling of public finances and ultimately the economic outlook for the country. An uncertain political climate has dissuaded corporates from investing in new projects, limiting SA’s ability to achieve a higher trend growth rate," she said.

"A lacklustre growth environment is a risk to government’s fiscal consolidation path as it may negatively impact on revenue collection."

She sees slight downside risks to Treasury’s nominal gross domestic product (GDP) - and hence revenue - forecasts and she projects a potential nominal GDP undershoot of around 0.5% on average over the next three years based on a more optimistic view on headline inflation.

READ: Budget 2017: Experts share tax predictions

"In our view, the bulk of the additional R28bn in revenue to be raised this year could be collected through renouncing compensation for fiscal drag, as well as by raising fuel levies and sin taxes. Although hiking the VAT rate could reap meaningful revenue gains, VAT is deemed to be a regressive tax, falling disproportionately on the poor and middle class, which is exacerbated in a challenging economic climate," she said.

"SA’s fiscal flexibility is limited in a subdued growth environment. Sticking to the expenditure ceiling will be an important positive signal to the rating agencies that government remains committed to its path of fiscal consolidation. Though government has already announced significant cuts to the goods and services component of government spending, we might see a further commitment to reduce wasteful expenditure."

One of the largest drags on the fiscus is the civil servant wage bill.

"In our opinion, fostering political and economic stability is key in retaining SA’s position as an investment grade country. Politically induced uncertainty around economic policies is likely to hinder government’s quest for higher growth and is likely to further tarnish SA’s credit worthiness," she said.

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