'Toughest Budget yet' for Manuel

Johannesburg - The national Budget to be unveiled next week is likely to be finance minister Trevor Manuel's toughest Budget by a long shot, Investec Asset Management said on Tuesday.

"Back in September last year, when the Medium Term Budget Policy proposals were drawn up, the world was a different place and it seemed as if South Africa would maintain reasonable growth in the New Year," said Andre Roux, head of fixed income, in a statement.

However, the situation had changed and the country would be lucky if it ended the year with positive growth.

"The deterioration in the economy is already evident in the monthly revenue and expenditure data issued by Treasury.

"VAT receipts in December, for example, were down to what they had been a year before and far lower than what had been budgeted in February last year," Roux added.

The same applied to company tax, which had also run into negative territory.

Revenue for the current financial year was likely to fall short by about R12bn from the revised figures introduced in September.

"The deficit will probably rise from the revised R9bn to an amount in the region of R20bn."

The Treasury had become used to exceeding its revenue targets year in and year out, so the shortfall was likely to be a new experience for them, Roux said.

"In itself, it is not a problem and Treasury has already been stepping up its issuance programme steadily in recent months. The real problem is that the base for calculating next year's revenue is now a lot lower."

According to Roux, the medium-term expenditure programmes announced in September last year provided for various plans unveiled in the ANC's manifesto.

Non-interest expenditure growth for the next fiscal year was projected to increase by 18 percent above this year. This appeared to provide more than enough money for the first stages of the new ANC leadership's "somewhat more expansionary programme".

No pressure

"We don't expect Manuel to be under any pressure to increase this level of spending," Roux said.

Likewise, against the backdrop of a global growth slowdown, Roux doubted Manuel would want to reduce the level of spending either.

"We believe he will do his level best to maintain his commitments to all the infrastructure and poverty relief programmes and will probably try to stick to the expenditure numbers he set out in September."

As far as the revenue for the next financial year was concerned, Manuel was not going to achieve the targets set out in September.

"Indeed, he will be lucky if he maintains growth in company tax at some positive level, while the performance of VAT in the five to six percent range will probably be no better than this year."

Personal income tax, however, was likely to remain reasonably buoyant, largely because remuneration levels would have risen based on the higher wage settlements seen over the course of last year.

"We shouldn't expect Manuel to be as generous to taxpayers as in previous years, although he may try to deal with the fiscal drag on personal income tax to provide relief against inflation erosion.

"We expect some R5bn to be given back to the taxpayer," Roux added.

Revenue for next year would be lower by some R18bn compared to the September figures, while next year's deficit would be revised upwards from around R52bn to R70 bn, equivalent to about 2.6% of GDP.

And the deficit would put more pressure on funding.

"There are significant foreign redemptions in the next fiscal year, so the net domestic bond funding requirement will probably be in the region of R70bn.

"While current bond auctions are in the order of R1.2bn a week, these will rise to R1.8bn a week as the fiscal year progresses."

This was not going to be a "fun Budget", so the country should prepare itself for an austere occasion, the statement concluded.

- Sapa