The mini budget explained for novices

Every year in late October the finance minister delivers what is officially known as the medium-term budget policy statement, but is better known as the mini budget. 

Here is what you need to know 

How does it differ from the main budget?

In February each year, shortly after the president delivers his annual State of the Nation Address, the finance minister delivers the (main) budget, which contains the state's spending plans, revenue projections, announcements of tax increases and more.

Then, eight months later, the minister delivers the mini budget, which essentially updates the budget. The mini budget does not generally include major announcements in changes to spending or tax plans announced in the February budget. 

What the finance minister will do is announce spending tweaks, give an overview of the country's economy and trial run proposals that may be included in the February budget. The mini budget will also give the latest information on state revenue projections, government debt and the deficit, and provide a three-year overview of where National Treasury thinks the SA economy is heading.

On Wednesday Mboweni will need to cost major proposals announced since the February budget – such as President Cyril Ramaphosa's R50bn stimulus plan announced in mid-September. 

Why is it being delivered by Tito Mboweni?

After Ramaphosa was elected president in February, he initially kept Jacob Zuma's finance minister Malusi Gigaba on to present the budget. Then, as widely expected, he named his own finance minister: Nhlanhla Nene.

But Nene, somewhat unexpectedly, became embroiled in a Gupta-related mess when he gave testimony at the state capture commission of inquiry. Testifying before the commission in early October, Nene acknowledged that he had visited the Saxonwold residence of the Gupta family and their Midrand business numerous times between 2009 and 2014. He had not previously acknowledged these meetings.

"I was wrong in meeting the Guptas at their residence and not in my office or at least a public place," he said in a statement. As the controversy refused to die down, Nene offered his resignation to Ramaphosa. The president accepted it and named Tito Mboweni, who served as the head of the South African Reserve Bank between 1999 and 2009, a his new finance minister. 

So will there be tax increases?

While the South African Revenue Service is under pressure to bring in more tax, analysts think it very unlikely that Mboweni will announce any tax increases in the mini budget, as these are almost always announced in the main February budget.

• READ: From taxes to the deficit: What economists want from the mini budget

"Actual material tax increases are not expected. These are only likely in the 2019 budget," says Investec chief economist Annabel Bishop.

"They won't announce tax changes in the mini budget, as this is not the forum to do this," notes Old Mutual Investment Group head of economic research Johann Els. 

If not tax, what will Mboweni speak about?

A lot has happened in the country since the February budget: the petrol price has continued to increase, Ramaphosa has announced a R50bn stimulus plan to kick-start the economy, a panel has been investigating whether South Africa should increase its basket of VAT zero-rated items, the country slipped into a technical recession, a new Mining Charter has been approved and expropriation of land without compensation has seldom been out of the news. 

Mboweni will likely touch on all of these, and is certainly expected to explain how spending will be "reprioritised" – or moved from one department to another – to fund Ramaphosa's R50bn stimulus plan.

He may also announce whether or not the state seriously aims to introduce a cap or ceiling on the fuel price. 

Mboweni will also be faced with the perennial question of how the state aims to improve the financial position of state-owned enterprises, which have tens of billions of rands in guarantees with the state. He will be expected to speak about the budget deficit, and how the state plans to decrease the public sector wage bill. 

Ratings agencies – why are these important? 

South Africa is in a particularly delicate position where ratings agencies are concerned. Of the three major global ratings agencies – Fitch, S&P and Moody's, only Moody's still has South Africa's sovereign debt rated as investment grade. S&P and Fitch both downgraded South Africa to below investment grade – commonly known as junk – in 2017.

Moody's has South Africa balanced at one notch above junk. It has said it hopes to hear from Mboweni about how the state will deal with the mountains of guarantees weighing down state-owned enterprises such as Eskom, and plans to put the power utility and other SOEs on a sound financial footing. 

International investors closely track the positions of ratings agencies, as they are supposed use objective and critical criteria to assess the likelihood that a country will fail to repay its debt. If Moody's does decide to downgrade South Africa to junk in the wake of the mini budget, a number of international funds will automatically withdraw money from the country. 

* Visit Fin24's 2018 mini budget hub for all the news, views and analysis.