#OwnTheBudget: Understand what’s to come in #Budget2019
13 February 2019
South Africa’s Minister of Finance, Tito Mboweni, is days away from delivering the annual Budget Speech on the 20th of February. Although it may be hard for most people to predict what the outcomes will be, one thing that we can be sure of, is that all the announcements will affect your pocket and lifestyle in some way. We want to help you #OwnTheBudget and prepare for what to expect, so we got our expert, Craig Pheiffer, Chief Investment Strategist at Absa Stockbrokers & Portfolio Management to share a few of his predictions.
Inspiring confidence and practising discipline
After 11 years of running at a deficit, it’s time to inspire confidence in both the local populous and ratings agencies – but how exactly can Mboweni achieve that in #Budget2019? Simple. Debt issues that have plagued the economy for just over a decade need to be placed at the top of the agenda, as Pheiffer agrees. “Not only has the budget deteriorated quite substantially over the last few years, but we’ve also seen the budget deficit widen out considerably.” This has implications for all South Africans and sees investments and their ratings being negatively affected. “The one key thing we’re hoping Tito Mboweni will deliver, is a budget that prioritises getting back onto the path of fiscal consolidation,” Pheiffer explains. It’s time to show more discipline around the budget.
Despite hopes that the third year of each budget framework will be the year debt peaks, unfortunately, South Africa’s debt has been ratcheting up. This is in part because every time we face the Medium-Term Budget, the deadline for this long-promised “peak” is pushed out. #Budget2019 is the prime example of this, as this will now only happen in the year after the three year budget plan. Currently, we are sitting at just under 60% of debt to Gross Domestic Product (GDP), a figure we do not want to pass. “That’s the disconcerting thing,” says Pheiffer. “Debt is becoming a bigger and bigger part of the budget, eating into other costs – which means that the government has to spend less in other places if they want to resolve this issue. Much like your personal budget, if you’ve got too much debt you have to compromise with other expenses.”
Is fiscal consolidation a possibility?
With an economy that is currently growing at less than 1%, there isn’t a lot of scope for fiscal consolidation in the short term. “In this budget we may be disappointed, even though fiscal consolidation is the one thing that we really want to see,” explains Pheiffer. However, he also believes that the opportunity lies in the fact that Mboweni has had more time to prepare for #Budget2019 – unlike the Medium-Term budget in October – and will allow for more input into the budget with the chance to lift confidence. “I think it’s the confidence that we need to get it going. People are confident about the economy and their own finances, but they’re not willing to go out and buy durable goods. If we can get confidence back on track, we can get the wheels going again.”
What are the five big announcements we predict will be made?
- The budget deficit announcement. This is the most important figure to citizens and market-watchers alike. “In 2018 we had a budget deficit of 4.3%, which widened from 3.1% in 2017. This widening is responsible for the unfortunate downgrades we received, and this year’s figure will set the tone for the whole of #Budget2019.” says Pheiffer.
- Tax brackets. This is one of the biggest questions for citizens. “Tax brackets were adjusted very moderately up last time but just below inflation, leading to a bracket creep” explains Pheiffer. A bracket creep comes about when consumers receive an inflationary increase but are pushed into a new tax bracket, leading to the unlucky few earning less. According to Pheiffer, “If you’re on the cusp of the bracket or they increase the bracket to just above what you’re earning, you may lose out by earning less or paying more taxes.”
- Economic stimulus and recovery initiatives. As Pheiffer explains, “Most people are going to want to know how Mboweni plans to spend the money efficiently – effectively getting more bang for our buck as he gets the economy going, with a special focus on stimulating growth and private investment.”
- Way forward with state-owned companies. It’s no secret that many of South Africa’s state-owned companies are in need of assistance. “Knowing that these state-owned companies are in dire straits, many of us are going to want to know how they will be helped despite the constraints of the budget,” comments Pheiffer.
- The public sector and the Wage Bill. These make up the biggest expenditure of the budget. According to Pheiffer, “Mboweni will have to tread very lightly because citizens will not react well to more job cuts, and with an upcoming election it would be politically unpalatable.”
Not what you were expecting? #Budget2019 doesn’t seem to be gearing up for any massive surprises. “This year will be more about the finer details and getting into the nitty, gritty parts of the budget and making those work,” theorises Pheiffer, “It’s more about the expectation around how they re-prioritise spending.”
What are unlikely announcements?
VAT and prudential limits. “Last time we got an increase in both of these things, so I don’t think we’ll see these change again,” suggests Pheiffer, “but there is a possibility of an increase in the interest exemption, which currently sits at R23 800”. This rate remained unchanged last year with consumers encouraged to open tax-free savings accounts, but an increase in interest exemptions could also mean an increase in the amount that can be put into tax-free savings “You want to see things that promote savings and investments,” Pheiffer explains, “Of course, these decisions are all part of the balancing act: the more they allow to be tax-free, the less income that they get and the more money that has to be shuffled around.”
How can I #OwnTheBudget?
Just as Tito Mboweni is preparing South Africa’s budget, you have to prepare yours. “Consumers will have to contend with the usual sin tax increases,” suggests Pheiffer “Along with the likelihood of increases in the fuel levy and road accident fund levy – increases which are all guaranteed to hit the pocket from day one of being implemented.” There’s also the silent threat of inflation, which will come about as a result of tax brackets increasing along with inflation. “After the tax brackets have been adjusted, it’s possible that your spending power will be impacted even if you receive an increase to account for inflation.” warns Pheiffer.
A step in the right direction
Although much of the predictions around #Budget2019 seem concerning, there is reason to be positive. “There has been a discipline around managing expenditure without spending more,” explains Pheiffer. “They’ve put in a ceiling and rather than spending more, they have found a way to reprioritise. So, we’re certainly looking at the potential of more growth than last year and possibly a better inflation outlook.” In short: we can celebrate the discipline that has come into the budgeting process, something that can come through in your personal budget too.
There you have it, with our predictions for #Budget2019, you should be able to #OwnTheBudget and prepare yourself for what the Minister of Finance has in store. If you have any questions, or if you need further assistance, visit our website or contact us on 08600 08600.
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.