Finance Minister forced to table a conservative budget but opens the door to key DA economic policies
South Africa's fiscal policy is in a holding pattern. Faced with a R16bn shortfall in tax revenue, the Finance Minister has been forced to run a budget deficit in excess of 5% of GDP for the first time since 2009, when we had to respond to the global financial crisis.
The effect of the larger deficit will be to drive government debt higher over the medium term and when contingent liabilities are included, government's net indebtedness now extends beyond 50% of GDP. This will not mitigate the ratings agencies' concerns about a lack of fiscal space.
We are pleased, however, that key DA economic policies have been included, albeit with only modest funding. These include:
- A watered-down version of the Youth Wage Subsidy funded with R500m; considerably less than the R1,6bn earmarked for the original version - we hope the Minister has the political capital to see it implemented;
- A R2,9bn tax incentive package for Special Economic Zones, including a generalised wage subsidy and cut in income tax from 28% to 15%;
- Minor reforms of small business taxation totalling a modest R360m; and
- Increased tax deductibility of charitable donations.
On the old age pension, we are frustrated that it has been increased by less than inflation, but welcome the move to scrap the means test.