MTBPS Analysis

The uncertainty remains

Ryk van Niekerk
ryk-van-niekerk-2.jpg

If there wasn’t this massive political cloud hanging over South Africa, the 2016 Medium Term Budget Policy Statement (MTBPS) could have been the most boring since its institution 20 years ago.

Over the past few weeks several commentators, and probably the media too, built the MTBPS into a major event that would provide some desperately needed “certainty” in South Africa’s current tumultuous political environment.

The build-up was laden with tension amid concerns that Pravin Gordhan would not present it after the NPA laid blatantly politically motivated charges against him.

It was therefore a relief to see a jovial Gordhan in a press conference prior to his address in parliament. One wonders, though, whether he could have provided slightly more insight into the possible impact of the current political infighting on state spending?

20th MTBPS

To be fair, the purpose of the MTBPS is to provide clarity and predictability regarding government’s medium term income and spending projections. In this regard, National Treasury is recognised as world class. This year’s rendition was the 20th and was as boring as most of the previous 19.

But this year’s presentation was very different from all the others. The current political infighting, the fraud charges against Gordhan, and the allegations of corruption and state capture against the president have politicised the treasury. This should have been addressed as it could have short and medium term implications for government spending.

The most concerning issue is of course the proposed trillion rand plus nuclear build program that has CORRUPTION written all over it.

It was therefore surprising that within the MTBPS policy statement, all 75 pages of it, there was only one reference to the word “nuclear”, and that was in relation to the management of nuclear waste.

Not another reference.

There was not even an update on the R200 million that Nhlanhla Nene set aside for a project office to research the viability of nuclear as a power generation source.

But Gordhan did repeat a previous undertaking that treasury will not approve projects that South Africa can ill-afford. This was in response to a media question on whether Eskom could afford to fund nuclear power stations off its own balance sheet. He replied, saying that “Treasury will not approve a deal that is to the detriment to the country.”

I don’t know if this is good enough.

Tax and fraud

Gordhan was also not forthcoming with information about other issues, such how the South African Revenue Service (SARS) will collect an additional R43 billion in taxes over the next few years, as well as about the fraud charges that were brought against him. The latter is perhaps understandable, but I am sure that most taxpayers would be really interested to hear more about the inevitable tax hikes.

 Gordhan made it crystal clear during his press conference that details of tax increases or changes are only dealt with during the February budget. However, taxpayers should brace themselves for a nasty surprise come February 2017.

Elephant in the room

Despite the political noise and the personal involvement of president Jacob Zuma and Gordhan in the controversies, the MTBPS also paints a very disconcerting picture of our economy.

We are really in deep trouble. South Africa will hardly see any economic growth in 2016 and not much more in 2017 and 2018. It is therefore not surprising that SARS’s tax collection for the current financial year will be around R23 billion short of budget. Without significant cuts in expenditure – which have been slow in coming - this could lead to significant tax hikes next year, which of course will put further pressure on economic growth.

It is a spiral from which few countries have escaped without much pain.

All eyes will now move to February next year when we will hear the State of the Nation address and the National Budget for 2017. That is still more than three months away and as we have seen this year, a lot can happen during this period. Hopefully one of the two speeches is made by an incumbent.

(This article first appeared on the Moneyweb site.)

by Ryk van Niekerk

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