Research and Economic Insights
Johannesburg, 27 February 2020. Minister Tito Mboweni delivered the 2020 South African Budget yesterday. The Budget was largely in line with expectations; curb wasteful expenditure, rationalize but support State-owned Enterprises, and tackle the public wage bill. “The one pleasant surprise, was that the minister declined to use extra taxes as a means to balance the books, and chose rather to let money circulate in the real economy” said NAACAM executive director Renai Moothilal, reflecting on the effort government is making in trying to get the economy to work again. “It was always going to be a tough budget and South Africans are at least starting to see state decisiveness in looking to kickstart a spluttering economy.”
The announcement on cutting the Public Wage Bill by R160 billion in medium term will likely lift business confidence and stave off, albeit temporarily, a Moody’s downgrade. The real test is on whether the Minister can carry out these reforms with the support of labour. NAACAM welcomes the commitment from government to sort out the issues at Eskom as the instability of the grid has impacted the automotive sector negatively.
Maintaining Fiscal Prudence
Overall, expenditure is expected to rise to R1.95 trillion with a consolidated budget deficit of 6.8%. The Treasury has announced that there will be no tax increases and that there is even a likelihood of reducing corporate tax in the “near future” to help businesses grow. Our initial assessment is that this will put more than R2 billion back into the hands of consumers. By and large, the Budget was well balanced, both pro-consumer and pro-business, which bodes well for our members who have been feeling the pinch on the manufacturing floor.
Automotive Industry in the 2019/20 Budget
Overall, government support for industrial business incentives has marginally declined to R18.5 billion. The Budget is not yet clear how much of this fiscal cash will find its way to the automotive sector, though it’s clear that the sector remains supported through the APDP and coming SA Autos Masterplan 2035 policies
Naacam supports the announcement that the Minister made on the finalisation of duties on exported scrap steel. This could be an important beneficiation lever the country uses to ensure consistent local supply of scrap metal at competitive prices, to stimulate foundry-based component production. Of course the flip side of this would be the impact of the Carbon tax on this same foundry sector and pretty much the rest of the industrial base in SA, which is still searching for as many footholds as it can find in the ever changing cross winds of the global economy.