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Industry reacts favorably to SA budget
February 27, 2014, 4:46 pm

 

Gordhan reduced the government’s real gross domestic product (GDP) growth forecast to 2.7% in 2014 from the 3.0% forecast earlier, but this was markedly better than the actual increase of 1.9% in 2013 [AP]

Gordhan reduced the government’s real gross domestic product (GDP) growth forecast to 2.7% in 2014 from the 3.0% forecast earlier, but this was markedly better than the actual increase of 1.9% in 2013 [AP]

TBP (Pretoria, South Africa) – South African Finance Minister Pravin Gordhan’s last budget of the current term of government ahead of the 2014 elections met with generally favourable reactions.

Ahead of his speech, Gordhan assured journalists in the Budget lock-up that the African National Congress (ANC) would return to office in the May 7 national and provincial elections, but he would not entertain questions about whether he or anybody else in Cabinet would return, as they all ‘served at the pleasure of the President’ and it was his prerogative to name his Cabinet.

Gordhan reduced the government’s real gross domestic product (GDP) growth forecast to 2.7% in 2014 from the 3.0% forecast earlier, but this was markedly better than the actual increase of 1.9% in 2013.

Auditing company PWC said that although the personal tax relief was welcome it did not fully compensate for inflation, which was 5.8% y/y in January 2014 and is forecast by the Treasury to average 6.2% in 2014 from an average of 5.7% in 2013 and 5.6% in 2012.

The South African Reserve Bank operates an inflation targeting monetary policy with the target range being 3% to 6%. The central bank has already increased the repo rate by 50 basis points to 5.5% in January. The prime rate for good credit risk companies and individuals is 9.0%.

Meanwhile, the South African Chamber of Commerce and Industry (SACCI) CEO Neren Rau welcomed Gordhan’s budget.

“The National Budget speech of Finance Minister Pravin Gordhan recognized and offered some solutions to several pressing concerns of the business community. The message that it’s time for action and implementation is especially welcome and SACCI hopes that this tone is carried forward into the next administration,” Rau said.

In particular SACCI welcomed the attention given to small and medium enterprises (SMEs).

“The tax compliance rebate proposal will reduce administrative burden and the recognition that the turnover tax is not working in its current form recognises the advice from the business community. The R6.5 billion for SME support over two years and tax exemption for grants to SMEs will open significant funds to this sector. Finally, the support to small scale farmers will also help an often overlooked industry. SACCI is truly impressed by this unprecedented and detailed support to SMEs,” SACCI said.

The delay in implementation of the proposed carbon tax to 2016 showed that the National Treasury recognizes the concerns voiced by the business community on the job losses in heavy industry that a carbon tax will impose, as well as uncertainty over technical matters like the accurate measuring of emissions and its broad implementation and enforcement.

Capital Economics economist Shilan Shah, however, noted that the bond market appears to be unconvinced over the future projection of the fiscal deficits, as capital market yields actually increased following the Budget speech.

“South Africa’s Finance Minister Pravin Gordhan announced new projections for smaller fiscal deficits over the coming years in today’s budget statement, but we think that these are unlikely to be met. Looking ahead, public debt levels look set to increase further over the medium term,” he said.

HSBC economist David Faulkner said the lower fiscal deficit trajectory was reliant on improving growth, which could be a risk factor.

“The lower deficits and on-going achievement of main budget non-interest expenditure ceilings are likely to be welcomed by the credit ratings agencies. We would not expect negative rating action to follow this budget. The Treasury’s GDP growth forecast of 2.7% is markedly above HSBC’s forecast of 1.8% for 2014 and the current consensus of 2.5%,” Faulkner said.

 

Helmo Preuss in Pretoria for The BRICS Post

 

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