SA Budget for 2008
Mariette le Roux, 29 October 2007 -Sapa/AFP
As South Africa's economic growth slows and inflation heats up, Finance Minister Trevor Manuel will present a medium-term budget on Tuesday with decidedly less to smile about than six months ago.
While analysts expect Manuel to be more cautious in his revenue predictions, they believe past prudence and a R5-billion budget surplus announced in February has left him with enough room to manoeuvre.
"We are certainly facing slower growth. GDP growth is expected to be well below 4 percent next year," said T-Sec economist Mike Schussler.
"This is going to change things. The minister is going to be in a slightly more difficult position."
As a result, Manuel is apt to cut his predictions for 2008/09 revenue income.
"The revenue prediction is likely to be conservative," said economist Jac Laubscher of Sanlam. "But the minister won't need to cut back on spending plans. He has enough fuel in the tank."
Presenting his annual budget in February, Manuel posted the country's first budget surplus in recent memory and forecast 5 percent annual economic growth to the end of the decade.
He also envisaged another surplus for the coming fiscal year.
But gross domestic product (GDP) growth of 5,6 percent in the final quarter of 2006, and 5 percent for the year overall, has since slowed to 4,5 percent in the second quarter of 2007.
And consumer inflation minus mortgage costs (CPIX) has quickened to 6,7 percent in September from 4,9 percent in February.
The CPIX figure is used by South Africa's central bank to measure inflation performance against the target of between 3 percent and 6 percent.
With CPIX consistently exceeding the target since April, up from a low of 3,1 percent in February 2005, the Reserve Bank has hiked its prime lending rate by a total of 3,5 percent since June last year to curb spiralling inflation.
Schussler predicts Manuel might shift his spending emphasis away from social welfare to investments for economic growth such as transport infrastructure.
He also hoped some money would go towards the erection of new power stations to boost the production side of the economy.
Laubscher said it appeared inevitable that the government would have to push money into parastatals like electricity provider Eskom and transport entity Transnet to prevent the cost of much-needed infrastructure expansion being passed on to consumers - thus also feeding inflation.
"Economic spending has to grow faster than social spending," he argued.
Nico Kelder of asset management company Efficient Group said Manuel had no major concerns as revenue, though projected to be somewhat lower, was still growing faster than inflation.
"The minister himself had predicted we will see slower economic growth by this time.
"While the economic circumstances might be somewhat more difficult, he has budgeted well for it and has done well in earlier Budgets to resist the temptation of cutting taxes and hiking spending to unsustainable levels."
The opposition Democratic Alliance urged Manuel to cut company taxes, give more money for health care, education and skills development and reduce the state's exposure to loss-making parastatals.
Such steps would boost job-creating economic growth, said DA finance spokesperson Kobus Marais.
Failure to do so, he said, would testify to "a government that has become a sitting duck, entrapped by the demands of the populist left ... ahead of the governing party's December national conference and leadership elections."
