The mini budget: what you need to know

Economic forecasts

• Real GDP growth revised downwards to 1.5% in 2015 (from 2% in Feb); 1.7% in 2016 (from 2.4% in Feb), 2.6% in 2017 and 2.8% in 2018.
• Inflation expected to accelerate and breach target band in 2016: 4.8% in 2015, 6.2% in 2016, 5.9% in 2017 and 5.8% in 2018.
• Current account deficit as % of GDP to widen over time: -4.1% in 2015, -4.4% in 2016, -4.6% in 2017 and -4.8% in 2018.

Revenue

• Revised revenue estimate is R1.1 trillion, leaving a main budget deficit of R176.3 billion.
• Gross tax revenue revised down by R7.6 billion this year and R35 billion over the three-year period.
• Consolidated budget deficit R157.9 billion, or -3.8% of GDP.
• Revenue estimate R1.14 trillion in 2016/17, R1.25 trillion in 2017/18 and R1.4 trillion in 2018/19.

Spending

• Consolidated budget deficit to decline over the next three years: -3.8% in 2015/16, -3.3% in 2016/17, -3.2% in 2017/18 and -3% in 2018/19.
• Expenditure: R1.25 trillion in 2015/16, R1.3 trillion in 2016/17, R1.4 trillion in 2017/18 and R1.6 trillion in 2018/19.
• Government expenditure to grow by 7.2% over next three years, remaining above inflation.
• Salary adjustment of R1.2 billion for national departments and R3.8 billion for provinces is the main revision to expenditure estimates.
• Two substantial allocations provided for in February budget: R23 billion to Eskom (already enacted by the House) and R2 billion to the New Development Bank (financed through sale of Vodacom stake).

Debt

• Following the recession, government debt increased from around 26% of GDP to 47% in March this year.
• Projection is for debt to rise by a further R600 billion over the next three years.
• Gross debt expected to stabilise at 49.4% of GDP in 2018/19.
• Net debt expected to stabilise at 45.7% of GDP in 2019/20.
• Debt-service costs to grow 10.9% per year – faster than the budget as a whole – reaching about R174.6 billion in 2018/19.

Feedback on cost cutting measures

Cost cutting measures announced in December 2013 (related to use of consultants, travel, entertainment catering and events) have led to:

• In the first year, across all national and provincial departments a 3% decrease was achieved in spending on consultants, 6% in travel and subsistence and a 47% decrease in catering, entertainment and events.
• Further reductions expected over medium-term, but not yet full compliance.

Labour instability

• Labour relations improve in H1 2015: 176 000 workdays lost due to industrial action (H1 2014: 7.5 million).
• CCMA increasingly proactive in settling disputes thanks to changes in Labour Relations Act.
• Nedlac working on practical ways to avoid protracted strikes and considering proposals for national minimum wage.
• Total claims for Employment Tax Incentive for young employees have amounted to R3.9 billion since start of the program; 36 000 employers have claimed for more than 250 000 workers.

SOEs and government stakes

• R2 billion from sale of Vodacom shares to be used as initial capital contribution to the New Development Bank.
• The share sale is expected to yield total receipts of R25.4 billion, of which R23 billion has been provided to recapitalise Eskom.
• Government guarantees to SAA amount to R14.4 billion, of which R11.4 billion has been used.
• SAA only expected to generate sustainable profits in five years’ time.
• Sanral’s most recent bond issuance oversubscribed.
• Reduction in toll fees has created long-term revenue shortfall that will be shared between national government and the provincial government.
• In the first year of the new dispensation, an allocation of R301 million will be made to Sanral.

Electricity constraints 

• Government revising Integrated Resource Plan, which maps out future energy mix.
• National Treasury working with Department of Energy to consider costs, benefits and risks of building additional nuclear power stations.
• Over medium-term R200 million allocated to support preparatory work for nuclear procurement.
• Independent power producer programme expanded to include other generation technologies.
• Electricity regulator has approved 1 350 MW of short-term power-purchase contracts in 2015/16. Additional 2 500 MW of coal, 3 126 MW of gas, 1 800 MW of cogeneration and 2 609 MW of imported hydro power generating capacity expected to be connected to the grid between 2020 and 2025.

Financial sector reform

• Bill to give effect to Twin Peaks regulation has been certified by State Law Advisors and will be tabled next week.
• Insurance Bill likely to be tabled before the end of the year.
• Work on social security reform (that will accompany retirement reform) at advanced stage.
• Treasury engaging with labour to ensure members of provident funds enjoy full benefits of tax deductions.
• Draft Bill on Carbon Tax published for comment later this month.

Source: Moneyweb