Transcript Key Macro Points - Amazon Web Services

Budget Review
2004/05
Andile Mazwai
February 2004
Overview
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Key macro points
Forecasts and assumptions
Taxation
Employment creation
Key Macro Points
 Kept fiscal policy expansionary as deficit grew to 3.1% of GDP
 FY03/04 revenue under performed by R4.2bn to R300.3bn
 But still displays fiscal discipline as FY03/04 spending lowered
by R2.3bn to R331.7bn and FY05/06 deficit reduced
 If Rand remains strong it will widen the deficit by lowering
growth
 Little foreign exchange relaxations notwithstanding Rand
strength
 No change to tax on retirement industry (policy proposal 2004)
 No detail on privatisation, but extraordinary receipts cut to
R2.7bn from R4.7bn
 Debt funding of FY04/05 R46.2bn deficit in the bond market may
place upward pressure on interest rates
Forecasts and Assumptions
 GDP growth
• 2003 1.9%, 2004 2.9%, 2005 3.6%, 2006 4.0%
• We consider Treasury's 05 and 06 forecasts to being ambitious. We
forecast growth of not much more than 3.0% in this period.
 Deficit
• FY03/04 2.6%, FY04/05 3.1%, FY05/06 3.0% , FY06/07 2.8%
• Given our muted GDP forecasts we see a risk of revenue underruns in FY05/06 and FY06/07, meaning that the deficit could widen.
 Inflation
• "comfortably inside" 6% - 3% target band
• Notwithstanding the impact of the drought, we believe that there
has been a structural break in inflation and share the view that
inflation will be kept within the target band. 5.6% in 2005 and 5.0%
in 2006.
Forecasts and Assumptions
 Rand/USD
• Treasury does not provide explicit forecasts for the rand exchange
rate, an implicit exchange rate view can perhaps be drawn from
estimated rand proceeds from foreign market loans shown in its
financing numbers.
• Current implicit forecast; Q204 7.40, Q205 8.10, Q206 8.91
• November’s implicit forecast; Q204 8.49, Q205 8.99, Q206 9.80
• This suggests much greater optimism on the currency versus
November’s implicit projections and creates greater internal
consistency in government’s macro projections.
Taxation
 No major changes were announced this year, which
underscores that the gradual restructuring has worked to
broaden the base and reduced the impact on economic
behaviour. The exceptions are with;
• the taxation of mining companies (following the Commissioners
remarks) and the review of the Mineral Royalty Bill and
• the expected reform to the tax on the retirement industry (policy
proposal 2004).
 No change to VAT was correct decision.
 Revenue under-run limited relief to R4.0bn.
• 60% of which is for earners below R150'000 pa.
 Treasury forecasts 13.4% growth in company receipts (from
8.8% in FY03/04). We consider this to be optimistic, given the
extent to which the stronger currency is shrinking exporter
profitability.
Employment Creation
 Is the Minister’s aim of reducing unemployment by half by 2014
realistic?
 A labour-based public works program requires;
• Dept of Education and Labour to deliver human capital to serve as
a fertile field for the seed of physical capital.
• Increased savings rate (create and promote a savings culture).
• Broad-based empowerment. The charter scorecard system
correctly reduces the fixation on equity ownership and focuses and
employment equity and skills development.
• Strong governance to prevent the process being hijacked by
corruption.
• State entities as effective agents of change. State financial
institutions should behave less like commercial banks and more like
development finance institutions.
 It’s difficult to foretell the next 10 years, but based on the last 10
– then it’s realistic to be optimistic.
Q&A