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Economic week ahead: Minister likely to declare tax hikes

23 February 2015   (0 Comments)
Posted by: Author: Ntsakisi Maswanganyi
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Author: Ntsakisi Maswanganyi (BDlive)

It is almost D-day for Finance Minister Nhlanhla Nene as he tables his budget speech in Parliament on Wednesday.

Unlike previous years, this budget speech is highly awaited for details of government’s fiscal consolidation plans and the much talked about tax increases.

Whatever tax increases he reveals, at least they are expected, the shock to markets will be limited. The minister will definitely increase the fuel levy, maybe by more this year than in previous years given the lower oil prices that have given consumers relief at the pumps.

What will be of particular interest to rating agencies are what the minister says about budget deficits.

If government is able to narrow the deficits over the next financial years, that will support ratings upgrades.

As it is, Standard and Poor’s already has SA on a rating that is just one level above junk status while Fitch has a negative outlook on its rating.

Market attention will fall on economic growth data on Tuesday before the minister’s budget speech on Wednesday.

Statistics SA (stats SA) will release the gross domestic product data for the fourth quarter of last year and for the year as a whole. The data is unlikely to surprise, given that there were very limited disruptions to production over the period. The only disruptions were power outages, but they were not as severe as the ones experienced last month.

Most workers were also away on leave during December.

Economists expect data to show the economy grew a seasonally adjusted and annualised 3.5% in the fourth quarter compared with an increase of 1.4% in the third quarter.

The data is, however, going to show that economic growth slowed to about 1.4% last year from 2.2% in 2013 mainly because of strikes in mining and manufacturing — two of the economy’s main productive sectors.

The debate around weak economic growth has gone on for too long and solutions are few and far in between. The government in partnership with the private sector are trying to create jobs in particular for the youth through schemes such as the employment tax incentive.

The debate around weak economic growth has gone on for too long and solutions are few and far in between. The government in partnership with the private sector are trying to create jobs in particular for the youth through schemes such as the employment tax incentive.

Jobs are being created, just not fast enough to match the high number of people looking for employment in the country.

The position the government finds itself in is very tough. It is at pains to address high unemployment but its purse is strained to a point where the finance minister has even announced a freeze in public personnel headcount.

The Government cannot create jobs so it needs to make the environment conducive for the private sector to create jobs.

This means making legislation, particularly labour laws, easier to comply with. No one can deny the necessity of laws but if these are too onerous to comply with, those that can help create jobs, such as the private sector, may find it less inviting to do so.

Stats SA will release producer inflation data on Thursday. Economists expect the producer price index to have slowed to about 4.7% last month compared with a year earlier from 5.8% in December.

Producer inflation, as is the case with consumer inflation, has been moderating in recent months as the effects of lower oil prices continue to filter through.

The South African Revenue Service will release trade data on Friday. The trade balance will have registered a deficit last month, as is usually the case every January as imports surge as factories prepare for production.

This article first appeared on bdlive.co.za.


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