Agri SA’s expectations for Medium-term Budget Policy Statement 2019

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Finance Minister, Tito Mboweni, will be tabling the Medium-term Budget Policy Statement (MTBPS) in Parliament on Wednesday, 30 October 2019. Agri SA say that they expect the MTBPS to make adequate resources available to boost agriculture’s competitiveness and to support farmers, especially in the drought affected areas.

The MTBPS is an opportunity to report back and set out the context and assumptions that inform the following year’s budget.

In a statement they released, Agri SA said, “The balance between government income (tax revenue) and expenditure is at the heart of the government budget. The past decade shows a trend of low economic growth and rising government debt, where slowing growth reinforced the build-up of government debt. In addition, the high-level of government debt is now placing a further damper on economic growth.”

They added that key factors the MTPBS will have to consider should include:

The outlook for economic growth and tax collection: Slowing economic growth has a negative impact on the amount of tax revenue collected relative to the targets that were set in the February budget. Current market expectations point to the South African Revenue Service (SARS) missing these revenue targets.

Rising government debt: The interest payments for government debt is one of the fastest growing expenditure items in the budget. As the government budget deficit persists, the pressure from rising government debt necessary to cover the shortfall increases.

Limited scope for increasing taxes: Personal income taxes are reaching a point where higher tax rates will start showing decreasing returns in tax revenue. Increasing the value added tax (VAT) would be unpalatable in a slowing economy where consumers’ budgets are stretched thin. In the context of South Africa’s investment drive, higher company tax rates could deter much needed foreign direct investment (FDI).

Government expenditure and guarantees: Balancing expenditure against weakening revenues will require significant cost savings. However, the rising public sector wage bill along with support to struggling state owned enterprises (SoEs), especially Eskom, make this a difficult task.

Growth reforms: More detail on the roll-out of growth reforms proposed in the recent economic policy paper released by National Treasury.

They concluded by stating that “Considering the important role of agriculture for the South African economy, we expect the MTBPS to make adequate resources available to boost agriculture’s competitiveness and to support farmers, especially in the drought affected areas, so that the sector can continue producing quality food for the country and contribute towards job creation and poverty alleviation as envisaged by chapter six of the National Development Plan (NDP).”

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