“The revenue overrun was a positive feature, allowing for a more favourable gross debt to GDP trajectory. Tax hikes were avoided, with the Treasury instead focusing on growth,” says Investec chief economist Annabel Bishop.
“The announcement that the government will fund a free rollout of Covid-19 vaccines and restraint on the expenditure front at R2 trillion will support the shift of expenditure to investment and away from consumption.”
Professor Jannie Rossouw of the Wits Business School also feels positive about the help the budget will provide, but only if the government can contain the growth of the civil service wage bill.
“South Africa can no longer afford its civil service,” he says.
Hugo Pienaar, chief economist of the Bureau for Economic Research (BER) at the University of Stellenbosch, saw lots of good intent in the budget with no major tax increases besides fuel levies and sin taxes. This supports GDP recovery along with a commitment to reduce the corporate tax rate in 2022.
He says the really big item was confirmation of an effective public sector wage bill freeze over the next three years.
“If there is follow-through on this, over time it will assist in stabilising South Africa’s debt. However, faster GDP growth is also required to achieve this. This of course has large execution risk, but the intent was well received by financial markets and the business community, although the ratings agencies continue to have doubts and are emphasising the execution risks.”
An uptick in employment?
Bishop expects an uptick as consumer confidence and demand rise, supported by a pick up in growth, but she warns that a third and even fourth wave of the virus, depending on the severity and length and ensuing restrictions, will pose a real risk to growth and therefore employment.
Pienaar says although there was a recovery in the third and fourth quarters of 2020, Stats SA’s quarterly labour force survey still showed almost 1.4 million fewer people were employed in the fourth quarter of 2020.
“The pandemic leaves us with an even worse unemployment situation and a significantly more precarious public debt situation. The debt to GDP ratio is around 80% of GDP, compared to 63% in 2019.
“Employment has already improved with a cumulative 875,000 jobs recovered since the second quarter of 2020. After the initial relatively brisk recovery, it may be slower going from here and take some time before we get back to the pre-Covid levels of employment.”