Understanding South Africa's budget

Pravin Gordhan has done his part to appease ratings agencies Moody's, Fitch and S&P, which collectively downgraded their outlook for South Africa coupled with a potential credit downgrade. Following the tabling of the South African budget last week, Capricorn Asset Management's chief investment officer for equity and asset allocation, Floris Bergh, weighs in on the recently tabled budget.The South African budget will probably appease the rating agencies. The minister of finance, Pravin Gordhan, did his best to balance conflicting forces (in more ways than one) and came up with a politically palatable, and yet fiscally sound, budget. This means that South Africa's foreign currency sovereign rating is safe for now. Political risk events such as a cabinet reshuffle that results in Gordhan losing his job may still derail the rating, because it would create the perception that the South African government is not serious about fiscal consolidation.By fiscal consolidation we mean that expenditure is controlled and reduced wherever possible, that revenue does not fall away and that the result is lower budget deficits and a stabilisation of the debt-to-GDP ratio.Financial markets' reactions were fairly muted, even positive. The rand strengthened since the budget was delivered and is currently at R12.90 to the US$. Bond yields have also strengthened and are down about 10 basis points with the R186 at 8.67%. The equity market is virtually at the same levels. The property market initially did not like the increased withholding tax on dividends, but recovered when investors realised the effect will be small. For instance, a yield of 10% pre-5% increase will now be 9.5% post-5% increase. It is not negligible, but it is not a game changer.The revenue measures announced in the 2017/18 budget will raise an additional R28 billion for the fiscus and include: a new top marginal income-tax bracket, expected to raise an additional R16.5 billion; higher dividend withholding tax of 20%, expected to raise an additional R6.8 billion; fuel levy and sin taxes, expected to raise an additional R5.1 billion; and the sugar tax and carbon tax coming soon. This means that the minister expects to raise R1.41 trillion in revenue. This amounts to 30% of GDP. The biggest sources of revenue are taxes on income and profits, which contribute 59% of revenue, and Value-Added Tax, which contributes 36%. There is no doubt that South Africa is a highly taxed nation.A glimmer of light for Namibia is tucked away in the SA budget documents in that the estimate for outgoing payments from the SACU pool is up sharply. This could prove to be a game changer for the Namibian fiscus and economy. It would relieve pressures in more ways than one.FLORIS BERGH

Understanding South Africa's budget

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Namibian Sun 2025-04-04

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Understanding South Africa's budget

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Namibian Sun 2025-04-04

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