LIVE: All eyes turn to Gigaba


Jan Cronje, with Fin24 team

2017-10-25 12:34

Finance Minister Malusi Gigaba is facing what may arguably be the toughest challenge of his political career, when he presents his maiden mini budget to Parliament at around 14:00.


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How will Gigaba deal with tax revenue shortfall? 

With SA facing a projected tax revenue shortfall that is running into billions, South Africans will be carefully parsing Gigaba’s speech to see whether he will raise taxes.

Ettiene Retief, chairperson of the national tax and SA Revenue Service (SARS) committee as the SA Institute of Professional Accountants, previously told Fin24 there was a lack of trust among taxpayers due to fruitless and wasteful government expenditure.

“In order to regain the trust of taxpayers they will have to be convinced that expenditure incurred by government is ‘reasonable’,” he said.

Tax collections for Personal Income Tax, Corporate Tax and VAT are all expected to be lower than February projections, said Retief

“The procedures followed by SARS to collect and administer the tax system must be seen to be reasonable. More aggression is likely to lead to more resistance from taxpayers,” he said.

“It is essential that SARS remains efficient and robust in its collection and administration of the tax base.

“However, there are concerns that there is slippage in tax compliance and that taxpayers can expect more aggressive treatment from the taxman,” said Retief.

Gigaba’s credibility on the line in maiden mini budget

There will likely be no shift in the mandate of the South African Reserve Bank’s monetary policy committee in the finance minister’s first mini budget speech, set to be delivered at 2pm, according to Attard Montalto of Japanese bank Nomura. 

He also does not expect to see a shift in capital control rules at this time.

As for news on a state-owned bank, Montalto said supportive comments in this regard are widely expected and a further update on enabling legislation for licensing the Postbank is likely.

At the same time, he does not expect any meaningful move on this in the short term.

Montalto also pointed out that the auditor general has increasing concerns about PetroSA, which made a R1.4bn loss in the last fiscal year and looks “increasingly unsteady”.

However, Montalto said a recent Russian investment of $400m in joint oil and gas projects may remove the need for Treasury to do anything major at this stage.

Jobs is the number one issue in mini budget – Cosatu

The most important issue Finance Minister Malusi Gigaba will have to deal with in his maiden mini budget is unemployment, according to trade union federation Cosatu.

Speaking to Fin24 on Tuesday, Cosatu parliamentary deputy coordinator Matthew Parks said: “Unemployment has jumped from 15% in 2008 to about 38% now, so it’s the number one economic crisis.

“Basically 4 out of every 10 workers does not have a job. You can’t talk about slogans or policy to someone who is unemployed.

“So he has to say how his government can spur on the economy and get things moving, and so on. If we don’t want to solve that, we can’t solve anything as a nation.”

The second most urgent issue the finance minister needs to tackle is corruption, said Parks.

“I think that the other issue they would want him to speak on is the state of corruption in the state, especially the state-owned enterprises, SAA, Eskom, SABC, Denel and so on which are basically imploding the state.”

Rand traders nervously await Gigaba’s deficit numbers

It seems like the writing is on the wall for further rand weakness, but the slimmest chance of a better than expected deficit might boost the confidence of investors and help buoy the local currency.

This was the view of Gerard Van Der Westhuizen, a dealer at TreasuryOne, ahead of Gigaba’s inaugural mini budget speech. 

Van der Westhuizen pointed out that the expectation from Gigaba’s speech is not positive.

“Other than the already much anticipated mini budget, the rand should not be affected much by any other data to be released today,” he said.

“The range for the day (R13.68/$ to R13.86/$) is more skewed towards the top side and we can see the volatility increasing as we get closer to (the speech).”

He said surveys show that the slow economic growth is making it increasingly difficult for the state to meet revenue targets and the tax shortfall during the current fiscal year is likely to be the highest in more than half a decade.

Gigaba’s maiden budget can spark another downgrade, economist warns

Gigaba’s mini budget has the potential to lead to a ratings downgrade, Abdul Azeez Davids from Kagiso Asset Management has told Fin24 on Tuesday.

“Clearly if one looks at the (budget) statement, it’s not just for now. It’s basically government’s forecast for the next three years as well – and I think that the critical areas that we’re looking at are potential revenue shortfalls.”

An important factor, according to Davids, is the expenditure and funding of state-owned enterprises.

“If there is any slippage on that side, I think there is a real risk of that (a downgrade) happening,” he said. 

Turning to SOEs like Eskom and South African Airways, Davids said the issue is not just funding, but also the liquidity situation around these entities.

Gigaba’s moment of truth amid perfect economic storm

Finance Minister Malusi Gigaba is in an unenviable position. 

South Africa finds itself in a perfect storm with GDP growth that risks touching on zero, a revenue shortfall that could come close to the R50bn mark, over-indebted state-owned enterprises (SOEs) plagued by scandals and a corps of public sector workers that demand wage increases well above inflation.

Many of these problems are not of his own making, although some may argue that the demise of SOEs started on Gigaba’s watch when he was appointed public enterprises minister in 2010 and allegedly meddled with board appointments.

Be it as it may, the minister will need to perform an almost superhuman juggling act this afternoon.

The demands are many. The business sector, investors and financially strained South Africans want a message that Gigaba is in firm control of the country’s purse strings. They’ll want to hear him talk tough on corruption and his reassurance that he has a plan to get South Africa out of the morass of dismal economic growth, unemployment and inequality.

And then there are the ratings agencies, which are ready to pounce if the minister’s guarantees are not feasible.On the other hand, Gigaba is under considerable pressure from the likes of President Jacob Zuma, who seems hell-bent on pushing through with a nuclear build programme that has the very real potential to bankrupt the country.

Then there are Gigaba’s colleagues in Cabinet, who demand more money for their departments although a number of them have poor track records when it comes to spending their budgets.

Gigaba set to deliver maiden mini budget 

New Finance Minister Malusi Gigaba will present his inaugural Medium-term Budget Policy Statement (MTBPS), better known as the mini budget, to Parliament today starting at around 14:00.

Formerly the minister of home affairs, Gigaba was named the country’s new finance minister in late March, taking over from Pravin Gordhan in what was Zuma’s 11th Cabinet reshuffle.

He will be presenting his mini budget in a tough economic environment, with projected GDP growth for the remainder of the year below 1%. 

With SA’s budget facing a tax revenue short fall that may reach R50bn, South Africans will watch to see if he announces any tax increases. 

His speech will be closely studied to see what it includes about tertiary student fees, wage increases for public sector workers, SA’s nuclear build programme and capital injections for the likes of South African Airways. 

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