#MTBPS2018: 5 things to expect

23 October 2018

It’s almost time for the Finance Minister, Tito Mboweni and National Treasury to update and adjust the national budget – which is announced in February each year. That’s one of the reasons why you’ve been hearing more about the Medium Term Budget Policy Statement, otherwise known as the MTBPS, in the past few weeks. The other reason is the resignation of Nhlanhla Nene and the appointment of Tito Mboweni as the new Finance Minister.

So, while we wait for the Finance Minister to deliver his speech on 24 October, we spoke to Craig Pheiffer, Chief Investment Strategist at Absa Stockbrokers and Portfolio Management, to get an idea of what we can expect. It’s always good to be prepared, right?

According to Pheiffer, the fact that we have a new Finance Minister a few days before the MTBPS won’t have an impact on the speech’s outcome. “It’s important to remember that the speech and the financial policies aren’t put together by one person. There’s a whole department of people who do research and plan for the year. So, while the Finance Minister clearly gives direction and input in the process, it definitely isn’t a one-man-show.”

It’s also important to understand that the information given in the MTBPS is used by ratings agencies to determine the credit-worthiness of a country. Pheiffer expects that our current stable economic outlook will remain unchanged. “I don’t think there’s anything we can do in our current low-growth environment to prompt them to change their outlook with the view to an upgrade later. A stable rating is the best we can hope for at the moment.”

So, while the MTBPS also won’t have an immediate effect on the everyday lives of ordinary South Africans, it does give a rough indication of what’s to come in the next three-year cycle. And, as Pheiffer explains it, this is also the Government’s chance to get people to warm up to changes that Treasury is looking to implement in February next year. We never really expect any big announcements during the Medium Term Budget Policy Statement - it’s more about the bigger picture that eventually impacts the smaller things. But we are at a point in time where we really need to increase confidence in our economy. That’s why the general tone of the MTBPS needs to be positive and uplifting,” he says.

Now if there are no big announcements, what should we expect? According to Pheiffer, there are a few main topics that he reckons will feature in the Finance Minister’s speech. This includes clarity on recent announcements such as the reprioritisation of Government spending, as well as more details on the infrastructure fund and plans to add more zero-rated items to the current list.

Pheiffer further stresses the importance of reducing our current budget deficit of 3.6% of the Gross Domestic Product (GDP) over the three-year framework of the budget. This refers to the percentage in which the country’s expenditures exceeds revenue. The bigger the budget deficit is, the worse off the country’s economy is.

The general expectation is that the budget deficit is going to be revised a little wider for this year but it is hoped that an improving trend can be budgeted for over the next three years. “There’s no two ways about it, they have to restrain expenditure. It’s tough to boost revenue without increasing taxes in a low growth environment, but I think we’ve seen enough tax increases in the past few years, so I doubt that we’ll see more of that right now,” he says. “Increasing our economic growth rate to a much higher level is the real answer to our budget conundrum”.

Apart from the budget deficit, the other critical factor to consider is the implication of expanding the zero-rated items list. This refers to the list of items that you pay 0% VAT on and it includes essential grocery items such as eggs, milk and bread. According to Pheiffer it would be interesting to see if this actually happens. “This decision would obviously impact tax revenues and mean that the numbers would have to be jiggled around a bit more because we’ll obviously be collecting less tax revenue on that front,” he continues.

Although it’s difficult to predict what the National Treasury will prioritise in this year’s MTBPS, one thing is certain – clarity will have to be given.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.