Postponed Budget Speech Flashcards
If we’re not willing to put our money where our mouth is (pause)
Why should investors?
The postponed speech, A FIRST OF ITS KIND DEBACLE,
Seems to have been because of a DISAGREEMENT IN THE RULING COALITION
- send a NEGATIVE SIGNAL TO THE MARKET
- investors usually look for stability from fiscal policy
A lack of a PUBLIC BUDGET SAY TO INVESTORS?
The LEADERS OF THE COUNTRY ARE UNDECIDED ABOUT A WAY FORWARD
Leaked budget though,
- proposed to RAISE VAT FROM 15% to 17%.
BAD FOR SOUTH AFRICA
- price increase slows consumption
- discourages investment
- SAns have less disposable income
W.r.t tensions in the Government of National Unity?
coalition members claim:
- the former ruling party no longer run a monopoly on economic policy
- being held to account
BUT…
A lack of unity in the GNU?
- questions about internal processes
- if they can’t manage internal tensions how can they steer the economy?
The market already signalled discomfort? A VAT HIKE COULD
- drive inflation higher
- prompting the Reserve Bank to maintain high interest rates for longer
Three things the minister could have done?
- avoidable
- first: transparent communication
Transparent communication
- early and clearly about the reasons for the delay.
- given investors a level of confidence
- we saw a fall in the rand by 14:36 on budget day because investors lost hope..
Second,
- be honest about gov inefficiencies
- rationalise wages and staffing in state owned enterprises
- the civil service sector that fails to deliver should be put under stricter conditions
SO AS NOT TO RAISE THE TAX BURDEN for fiscal goals
Third, consider lowering Tc
- selectively to ATTRACT INVESTMENT IN high-employment sectors
- tax incentives for BUSINESSES THAT CREATE JOBS lower the reliance on social grants
As Psec, together with our clients
we may see increased volatility in equity and bonds markets
- rand will face downward pressure as investors find it riskier
- BUT Our derivatives desk may get a lot more action
clients rush to hedge against the potential downturns or aim to capitalise on price movements
In closing [pause]
GNU, is faced with an opportunity to prove its credibility
- piece of advise from the World Bank
- sequence reforms in areas like transport, urban development, and social services”
opening rail networks to multiple operators and reduce the dominance of state-owned enterprises which will help restore public trust and attract private investment
Failure to act risks a downward spiral: higher taxes, higher borrowing costs, and a shrinking economy.
