Old Mutual warns of massive hole in SA finances

Johann Els. Head of Economic Research OMIG

Old Mutual economist Johann Els has warned that there is a R50bn hole in SA’s finances. He told a media briefing in Johannesburg that the sluggish economy means that revenue collection is below expectation, and he predicted new taxes might have to be introduced – although he said this was not likely before February.

“Revenue is way below target. Overall revenue is not looking great. The economy is running weaker. There will be an over-run on the deficit with a R50bn revenue shortfall,” he said.

“We will need additional revenue measures in the February budget. They could raise R18bn if they remove the zero-rating of VAT on fuel.”

Els said “we all feel the sense of crisis in the SA economy”.

He pointed to ongoing political turmoil, state capture – with suggestions of this even happening in the Treasury – ratings downgrades and a lack of confidence due to corruption.“Co nsumers don’t want to spend. Manufacturing investment is down 30% from the 2008 peak to now,” he warned.

Els said he is “hugely disappointed” that SA fared so badly in the World Economic Forum’s competitiveness rankings, slipping from 47th position to 61st. “We slipped in all of the positives. It seems too weak to be true, but it reflects the sentiment out there. If a foreign investor looks at us, it doesn’t look great at all. They would rather go to some other country where things are improving.”

He said that while the rankings of the other BRICS countries was quite stable, SA had slipped. “We need to fix economic policy, but confidence is the first one (to attend to). We need someone who is able to make the tough decisions to adjust fiscal policy. If not, the fiscal cliff and ratings downgrades are just getting closer. Everything hangs on the outcome of the ANC elective conference in December.”

Siboniso Nxumalo, of Old Mutual Investment Group’s Global Emerging Markets, suggested that there will need to be a catalyst for change. “When pain gets big enough, something happens, he suggested. “When something is drawn out you don’t quite see the consequences of where you are headed, and you adjust. But if petrol goes from 12 rand to 30 rand in a week – as happened in Brazil – you take notice.“

Something is going to have to give. Things have been so good for so long that we take it for granted…” He suggested that policy certainty is the “most important thing”.

“Until the (ANC) December conference, investors will sit on the sidelines. “We are getting left behind. If people see opportunity elsewhere, they will go elsewhere. We must increase confidence.”

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