Gordhan did not disappoint

2016-02-25 10:01
Finance Minister, Pravin Gordhan

Finance Minister, Pravin Gordhan (File)

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BUDGET IN BRIEF: Everything you need to know about Gordhan's speech

2016-02-24 16:34

What, in short, do you need to know about the Budget Speech? Fin24's Moeshfieka Botha and Terry Bell talk you through the main points. Watch the video for essential details on the new sugar tax, petrol hikes, sin taxes for cigarettes, spirits and alcohol and more.WATCH

Pietermaritzburg - Finance Minister Pravin Gordhan’s Budget received a cautiously optimistic response from business leaders and other commentators on Wednesday, who asked if it was enough to prevent a further sovereign downgrade.

“For all our sakes, let’s hope that the Finance minister has done enough to avoid a ratings downgrade,” said Pietermaritzburg Chamber of Business CEO Melanie Veness.

“What we needed ... was for him to inspire confidence and, practically, fiscal consolidation. We were looking for him to cut government expenditure significantly ... to look at private investment in state-owned entities, and better management of these entities, and some assurance that debt-to-GDP would be reduced going forward.

“He didn’t disappoint,” said Veness.

Global Credit Ratings CEO Marc Joffe said the Budget was a “pragmatic approach … against a backdrop of subdued economic growth, twin deficits, and a rising trend of government debt to GDP”.

Joffe questioned whether the cost-cutting plans of R25 billion per annum in government, and a further R15 billion in 2018/19, was achievable. “Rating agencies will digest the minister’s comments and stringently assess the realism and ability to rapidly institute the new initiatives proposed by the minister in his speech today, and their impact regarding key sovereign rating parameters. In due course, they will communicate their findings,” Joffe said in a statement on Wednesday.

A sovereign ratings downgrade is likely have a severe impact on an already weak economy.

“Overall we believe it was a safe budget, delivering nothing too surprising,” said Nosibusiso Ngqondoyi, head of research at Novare.

She welcomed the strides taken to improve the performance of state-owned enterprises, which that included a R5 billion transfer to Eskom being postponed and a merger of SAA and SA Express. This will improve efficiencies and a minority equity partner at SAA might unlock further value.

Analysts are also happy that private participation in ports, freight and rail will increase and that no more cash is allocated to National Health Insurance and nuclear power generation plans at this stage.

Ngqondoyi did not view the increase in wealth taxes via higher capital gains tax as a good thing, “as it might entice some to move their assets offshore, and it provides a headwind for fixed capital investments”.

Moody’s, Fitch and S&P rating agencies have recently downgraded the government’s debt rating close to junk status.

“We are confident the minister’s prioritisation of economic growth and increasing the pace of fiscal consolidation, thereby reducing the budget deficit … will yield positive results,” said Kaya Mfono, associate director: public sector advisory at Grant Thornton.

Seeff property group chairperson Samuel Seeff said “the tone was very positive and government and the minister need to be congratulated for … kicking the fiscus off on a positive note”.

Read more on:    pietermaritzburg  |  budget 2016

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