The financial press was awash with headlines immediately following the Budget 2022 address, ranging from ‘boring but responsible’ to ‘a feel-good budget’ to ‘something for everyone’ to ‘Fitch pours cold water over budget’. To gauge opinion on the 23 February speech we tuned in to five 30-second sound clips broadcast over Moneyweb.co.za. Imagine our amazement to learn that the average score awarded the Minister of Finance by four economists and one finance editor was a staggering 7.5 out of 10. Wait! What? As a responsible taxpayer who watched the broadcast live, this writer could not agree with this level of post-budget enthusiasm.
Too many buts and what-ifs to award a first-class pass
On a real-time assessment of the presentation, we might have gone as high as a six; but there are too many unaddressed issues to award the minister a first-class pass. Having allowed a bit more time to digest the minister’s expense and income promises; consider government’s track record in controlling public sector wage inflation; and extrapolating these factors over the next three to five years, our score would probably drop to below five. It is worth noting, dear reader, that the Minister of Finance had to carve out a budget with due consideration for the myriad challenges facing the South African government circa 2022…
More accurately, the Minister of Finance had to carve out a budget with due consideration for the myriad challenges that government has engineered since taking power in 1994. If you find this a harsh view, then consider the following statement made by Efficient Group economist, Dawie Roodt, during his post-budget presentation to clients and financial advisers. “The African National Congress (ANC) is a hugely destructive force that has caused immense damage to the SA economy; just about everything they have touched in the last few years is financially and operationally ruined”. Need proof, simply Google Denel, Eskom, Post Office, SAA, Transnet and hundreds of other State-owned enterprises (SOEs)
There is some disconnect between the writer’s scathing assessments and the views of those ‘in the know’. Goolam Ballim, chief economist at Standard Bank, congratulated the minister for “a plausible budget presented in a credible way”. His rating of eight out of 10 was influenced by National Treasury’s sensible application of its revenue overrun. “The budget elevated capital expenditure as well as allocations for service delivery, and that breaks from the recent past where wages were more richly rewarded,” he said. The relief offered to personal income taxpayers was applauded too, because individuals in the high- and middle-income groupings have for too long been viewed as a “soft underbelly” for raising additional revenues.
Perhaps the highest budget rating ever…
The most enthusiastic commendation of Budget 2022 came courtesy Johann Els, chief economist at Old Mutual Investment Group. He waxed lyrical about a good, market-friendly budget that showed progress towards fiscal consolidation and lower budget deficit and debt ratios. His nine out of 10 rating, possibly the highest we have seen over the years, also praised “the fiscal drag relief [offered to] individual taxpayers”. The South Africa economist at Citibank, Gina Schoeman, SA economist at Citibank, was less enthusiastic, mustering a mere 6.5 score, the lowest of the five interviewees. She noted that there was “a lot of expenditure pressures down the line, and no guarantee that revenue would remain strong over the next three years”.
Editor of Moneyweb.co.za, Ryk van Niekerk, offered a surprisingly upbeat Budget 2022 score of seven out of 10 considering his noncommittal summary of the address: “All in all, not a pretty picture; but the picture is better than what it was last year,” he said. This offsetting of negatives with positives became a bit of a theme in his short commentary, as he immediately dismissed the R180 billion revenue windfall achieved during 2021/22 as “not sustainable in the long term”. Van Niekerk was more upbeat about the nation’s fiscal position. “The deficit is much lower than expectation, at 5.7% versus around 7%,” he said. Total debt-to-GDP is pencilled in at 75% for 2024/25 compared to the almost 80% forecast during the October 2021 Mid-term Budget Policy Statement.
Better than expected outcomes for PIT payers
Why, we wondered, were commentators at large corporations so upbeat about Budget 2022? One conclusion: it is easier for an independent journalist to be brutal in an assessment of government’s plans than, say, someone employed by a major financial services brand that is committed to building the country through private public partnership. Another is that the budget was pro personal income tax (PIT) payers. Since it is clear that all commentators are human first, they should have been immediately swayed by the minister’s announcements of a 12-month extension of the Covid relief grant; decision to leave VAT unchanged; and gift of zero change to the general fuel levy or Road Accident Fund (RAF) levy.
High scores aside, the commentators admitted to some budget shortcomings. According to Ballim, there are a number of risks that could bedevil the minister’s good intent. These include the inability of the ruling party’s social partners to accede to low, single-digit public sector wage increases and state-owned enterprises queuing up for more help with their woeful balance sheets. Els also harboured some concerns about government’s ability to keep wage and welfare costs in check. “There are implementation risks around the expenditure budget down the line, especially from the wage bill and social grants,” he warned.
Schoeman opined that government might fall short on both the expense and revenue sides over coming years. “The social welfare expectations cannot be taken away, but without the revenue to pay for these government will have to inflict pain through tax hikes and debt accumulation,” she said. Her view resonated with that of an independent economist, who scored the speech at a solid seven out of 10. “The windfall that gave National Treasury the room [to produce this benign budget] came from rampant commodity prices, and that effect may wane, which is a risk for the future allocation of the budget,” said Thabi Leoka.
Some quickfire comment from a disillusioned journalist
This writer was fortunate to attend a virtual presentation of Budget 2022 alongside a team of experts from diversified financial services giant, Momentum. We had the opportunity to fire off a number of questions during the proceedings, leading with how one should interpret government’s continued commitment to rein in public sector wage austerity against recent announcements of back-dated, non-payroll cash stipends for workers… The answer: government faces a tough balancing act in keeping all stakeholders happy, or something along those lines. Herewith four further issues worth exploring, unpacked in part by the aforementioned experts:
One. The Minister of Finance indicated that changes to Regulation 28 were in the offing, with proposed amendments to be published towards June 2022. These changes will “enable greater investment in infrastructure by [regulation 28 compliant retirement] funds,” said Minister of Finance, Enoch Godongwana. This may turn out to be one of only a handful of uncontested ‘good news’ items emerging from the budget speech, because it finally puts the prescribed assets debate to rest and frees up the fund management industry to participate in impactful infrastructure projects on commercial grounds. Momentum was welcoming of the development.
RAF liability could blow out even further
Two. The decision to leave the RAF levy unchanged caught the Momentum experts by surprise. Roodt shared their concerns, siting the fund’s “massive actuarial deficit”. He postured that any steps to rein in RAF liabilities would meet tough resistance from lawyers, many of whom “make a killing out of the fund”. The RAF decision was one of many kick-the-can-down-the-road moments in the speech, but not the only one relating to the country’s road infrastructure. This writer was particularly surprised that there was no mention of the ongoing Gauteng-based e-toll issue… After all, if the budget is about funding and paying for infrastructure, then the e-toll mess is long overdue being addressed.
Three. Personal income taxpayers will have shrugged at the inflation-linked increase in their medical tax credits, up from R332 to R347 per month for the first two scheme members. This annual adjustment is hardly worth writing about. What readers should be wondering about, is how the Minister of Finance once again neglected to comment on the looming National Health Insurance (NHI) intervention. Instead, R15.6 billion was “allocated to provincial health departments to support their continued response to Covid-19” and another R3.3 billion to “absorb medical interns and community doctors”. This writer loved the use of the word ‘absorb’ as much as the phrase ‘creation of doctors’ that was trotted out in early NHI discussion paper. Silly word choices indeed.
Ending on a positive growth admission
Four. Isaah Mhlanga, economist at Alexander Forbes Investments, recently told journalists that South Africa needed to grow at 5% per annum to make a dent in unemployment. The Minister of Finance acknowledged the unemployment crisis, and it was around this issue that he made one of a handful of heart-warming statements. “South Africa does not aspire to be a below 2% GDP growth economy, we are capable of so much more,” said Godongwana. And while it remains impossible to know if anything will come from this comment, it was good to hear.
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