All eyes on mid-term budget

Details on government’s planned infrastructure development, South Africa’s credit rating and growth forecast are some of the issues business hopes to gain clarity on when Finance Minister Pravin Gordhan tables the 2012 Medium-Term Budget Policy Statement (MTBPS) tomorrow.

South African Chamber of Commerce and Industry (Sacci) chief executive officer, Neren Rau, said Sacci was eager to hear the minister’s address in Parliament on Thursday.

The chamber expects the minister to provide details on how government plans to fund the R4 trillion expenditure and the possible principles guiding private sector involvement towards the broad process of infrastructure development.

Earlier in the year, government unveiled the 20-year infrastructure development programme that will cost around R4 trillion over the next 15 years, with around R844 billion being spent over the next three years.

Several infrastructure projects have already been identified by the Presidential Infrastructure Coordinating Commission (PICC). They range from transport, rail to energy, with some already underway, such as the Port of Ngqura in the Eastern Cape, the Lephalale power station in Limpopo, and the Dube Trade Port in Durban.

However, widespread industrial action and illegal strikes have put a damper on the country’s growth outlook, a fact Rau found worrisome.

“It is inevitable that South Africa’s economic growth outlook will weaken due to the recent production stoppages brought about by widespread industrial action and illegal strikes. Despite official statements confirming South Africa’s economic stability, international investors often look for cold and hard facts like the size of the fiscal deficit to GDP,” said Rau.

Sacci expects clarity on the medium term fiscal outlook and further details on planned expenditure cuts to fruitless items that do not improve South Africa’s competitiveness. It also expects to hear of government initiatives to mitigate the further lowering of state owned enterprises credit ratings to below investment grade.

This month, rating agency Standard & Poor’s announced its credit rating downgrade of Eskom by one notch, as a consequence of its recent decision to downgrade South Africa’s sovereign rating.

On the issue of taxation, Sacci said government must resist the pressure to increase taxes as a means to manage the fiscal deficit, adding that the capacity of business to support further taxes was constrained and would impact on productive investments.

Sacci also expects the minister to provide clarity on government’s plan towards implementing a youth support programme. Sacci believes that the opposition from labour unions to the youth wage subsidy scheme can be negotiated to find a solution workable for all social partners.

Standard Bank macroeconomic strategist, Johan Botha, said the backdrop of the reading of the MTBPS was challenging, given the weak and uncertain global environment and deteriorating domestic economic conditions and downgrades of rating agencies.

In a research note, the bank said budget estimates for the 2012/13 fiscal year were based on GDP growth of 2.7% in 2012.

“We forecast GDP growth of 2.5%, implying that the increase in tax revenue streams into the fiscus’ coffers is likely to slow down in the second half of the fiscal year.”

Additionally, the bank expressed doubt of the estimated 4.6% budget deficit of GDP for the current year.

“The estimated budget deficit of 4.6% of GDP for the current fiscal year appears doubtful. In addition, reducing fiscal spending commitments to induce a lower deficit is extremely difficult. We believe it is more likely that the deficit will end up approximately 0.3% of GDP higher than originally anticipated.”

Standard Bank said Gordhan would have to balance the need for additional stimulus in a struggling local economy against the need to curb the growth in spending to reduce the budget deficit and government debt. – SAnews.gov.za