20160225-法国巴黎银行-South_Africa_2016_budget__What_lurks_beneath__12页_528kb

Summary of South Africa 2016 Budget

Core Content

The 2016 South African national budget was characterized by a mix of cautious fiscal adjustments and implicit policy signals. Despite some positive changes, the overall response from financial markets and the rand was negative, indicating a lack of confidence in the government's fiscal strategy. The budget was seen as "over-promised and under-delivered," failing to meet market expectations for bold reforms and transparency.

Main Budget Deficit and Fiscal Path

• The main budget deficit is projected to narrow from 4.2% of GDP in FY15/16 to 2.9% by FY18/19, showing a slight improvement compared to the October MTBPS forecast.
• A small primary budget surplus is expected by FY17/18, from an estimated -0.6% of GDP in FY15/16.
• The expenditure ceiling was lowered by ZAR 25bn over the next two years, with cuts primarily targeting managerial and administrative staff in the public sector.
• Despite these cuts, compensation of employees still accounts for nearly 40% of non-interest government spending.

Tax Policy Reforms

• Explicit tax changes were announced, including:
  • An increase in the fuel levy by 30 cents per litre.
  • Sharp increases in excise duties and capital gains tax.
  • Small increases in motor vehicle emissions taxes, property transfer duties, tyre and plastic bag levies, and incandescent globe tax.
• These measures are estimated to generate ZAR 18.0bn in 2016/17.
• Implicit tax reforms suggest a potential VAT hike in 2017, with an additional ZAR 30bn expected from outer years, likely through broader-based tax increases.
• The VAT rate is noted to be lower than in most other countries, especially those with high social spending, suggesting room for increases.

Revenue and Growth Assumptions

• The Treasury's growth assumptions remain too optimistic, with GDP growth projected at 0.9% in 2016, 1.7% in 2017, and 2.4% in 2018, down from previous forecasts.
• Inflation is expected to rise, with CPI averaging 6.8% in 2016, 6.3% in 2017, and 5.9% in 2018, which helps cushion the impact on nominal GDP growth.
• The Treasury believes that nominal revenue growth (8.9%) will outpace nominal GDP growth (8.2%), but this may not be sustainable if the macroeconomic environment worsens.

Debt and Credit Risks

• Government debt is expected to remain above 50% of GDP throughout the MTEF, which could lead to a ratings downgrade.
• Debt service costs are the fastest-growing component of government spending, increasing by 11.4% over the MTEF.
• The gross debt-to-GDP ratio is forecast to rise from 50.5% in FY15/16 to 51.0% in FY17/18, before stabilizing at 50.5% by the end of the forecast period.
• The public sector borrowing requirement (PSBR) is expected to decrease from ZAR 172.8bn in FY15/16 to ZAR 151.3bn in FY18/19, but the overall fiscal position remains fragile.

Infrastructure and Public Sector Investment

• The government plans to invest ZAR 865bn in public sector infrastructure over the MTEF, with ZAR 10bn reduced due to under-spending in local government.
• State-owned entities (SOEs) will play a significant role in infrastructure investment, with 40% of the spending allocated to them.
• The Treasury emphasized the need for fiscal discipline and private sector participation in SOEs, particularly for Eskom and South African Airways (SAA).
• ZAR 5bn has been withheld from Eskom pending compliance with cost-cutting and operational improvements.
• SAA is expected to draw down on its remaining ZAR 1bn guarantee before the end of the financial year.

Political and Policy Considerations

• The budget rhetoric was seen as disappointing and lacking in boldness, with the government relying on nuances and hints rather than explicit commitments.
• There is a trust deficit between the government and lenders, exacerbated by the Nene scandal and ongoing fiscal mismanagement.
• The Treasury's approach to public sector wage negotiations and collective bargaining is being re-evaluated to improve fiscal stability.
• The implicit signals of future tax hikes are intended to bolster policy credibility, but explicit measures are still needed to avoid a ratings downgrade.

Conclusion

The 2016 budget did not deliver the necessary fiscal reforms to restore market confidence. While some improvements in deficit reduction and tax policy were noted, the lack of transparency and explicit revenue measures raises concerns about the government's ability to maintain fiscal sustainability. The likelihood of a ratings downgrade remains high, particularly as growth and revenue performance are expected to fall short of Treasury's optimistic assumptions. The implicit VAT hike is seen as a potential solution, but without clear communication, the credibility of the government's fiscal strategy remains in question.