There is very little wiggle room from a fiscal policy point of view to support growth and the upcoming MTBPS delivered may have to break some eggs. This is according to Ian Matthews, Head of Business Development & Special Projects at Bravura.
Nastassia Arendse: Ian, tell me about these eggs that may need to be broken?
Ian Matthews: The key main issue to look at is the expenditure side of the government and reprioritisation of the expenditure. We’ve just seen substantial increase in salaries for civil servants’ way ahead of inflation around 7%. As all households, South Africa needs to balance its books. Right now, we are anticipating about 3.8% shortfall GDP and we need to make tough decisions regarding cost expenditure; for example, the state enterprises which continue to drain the fiscus. Government will have to make some decisions how they’ll manage the funding of these enterprises. Right now, government doesn’t have the capital to support these entities. An example of these are Eskom and SAA which have been an enormous drain on government resources. We’ll probably see two things; one will be a cut in costs, re-prioritisation of expenditure and the possibility of private-public partnerships to fund infrastructure development in the country.
Nastassia Arendse: Minister Mboweni has been finance minister for 2 weeks. Are you convinced that he might be able to reassure investors and ratings agencies that government has this budget deficit under control?
Ian Matthews: I think very definitely. The minister has many years of experience and in the context of his years at the Reserve Bank. I believe that the Minister, with the support of the President – and people have confidence in his views on the matter as well – will very definitely succeed in giving the market the comfort and certainty that they want.
Nastassia Arendse: MTBPS is unlikely to propose any material changes related to tax. If we had to fast forward to February, do you think that we might expect any tax changes at this point or is there very little room for manoeuvre?
Ian Matthews: The problem that we have is that the increase in the tax rates on higher income earners hasn’t really made a big impact on collections. We can’t really increase company tax rates given that we’re on the high end compared to our global competitors and VAT has had its run and we cannot see an increase there. I don’t see much change on the tax side other than possibly wealth tax for which the Minister has a particular preference for, but I can’t see that making a difference in the government expenditure side.
Nastassia Arendse: What is the one thing you will be looking out for this afternoon in the MTBPS?
Ian Matthews: I will be looking at two things. I look forward to hearing how they manage the expenditure and reprioritising it and how they’ll be looking to fund and support the infrastructure development relating to the government enterprises.
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