Budget 2019: The good news is there wasn't more bad news

PwC economist Christie Viljoen outlines the key takeaways for business in Tito Mboweni's budget speech.

Speaking about Minister Tito Mboweni’s Budget Speech, presented on 20 February, PwC economist Christie Viljoen says, “The good news is that there wasn’t more bad news.”

These are his key takeaways for business from the budget speech:
 
Tax breaks
“To my mind, there were two things that offer businesses incentive to grow,” he says. The first was the R19.8 billion that government has allocated for industrial business incentives, which will support 35,000 existing jobs and create about 25,000 new jobs over the next three years. The second is the increase in the income eligibility thresholds for the employment tax incentive scheme, which supports jobs for 1.1 million South African youth.  
 
Positive(ish) commentary around Eskom
Eskom is not South Africa’s good-news story at the moment, but in terms of current budget, the good news was that government is not going to take on the power provider’s debt. “Eskom took the debt on in the first place, and it must ultimately repay it,” says Christie.

The government has allocated R23 billion a year to support Eskom during its reconfiguration, but this fiscal support is conditional on the appointment of an independent reorganisation officer.

“This is not a bail-out, it’s not cash, and it’s not taking away their debt. It’s funding a turnaround plan. They are using the crisis to get real change in the system,” says Christie.
 
The carbon tax
The carbon tax has been a long time in coming, and has an implementation date of 1 June this year. Christie says that it will obviously have an impact on big business, especially industrial companies, and will affect the bottom line.

“But it’s been done for the right reasons even though it has negative implications. In South Africa, we can’t really afford to have it, but in terms of a global perspective, we can’t delay it any longer,” he says.
 
Mboweni willing to stay on as Finance Minister
Although Mboweni’s willingness to continue to stand as Finance Minister was not announced in the budget speech itself, it was stated at a related press conference. 

“It is always good to have stability in the finance ministry, which we haven’t had for a few years. So it’s good news that he’s willing to stay. He’s capable, transparent and honest, which is good for business and investor confidence,” says Christie.

Is Mboweni’s transparency enough to stave off a ratings downgrade?
One of South Africa’s biggest concerns right now is whether we will receive another ratings downgrade from Moody’s, meaning that we will be at “junk” status according to all three ratings agencies.

Christie says:

“Lots of big companies are exposed to exchange rate volatility so there’s a big concern for business that there’s going to be a downgrade in our sovereign rating in the next few months. At PwC, the view is that Moody’s will downgrade to ‘junk’ as well, which is going to knock the rand and push up inflation. It’s not a good prospect for businesses who are operating in a challenging environment already.”

He says that while Mboweni faced up to South Africa’s problems in his budget speech, and outlined plans for resolution, this is not necessarily what the ratings agencies look at.

“If you look at the size of the deficit, that’s deteriorated since the medium-term budget. It’s gone up to 4.5 percent from 4.2 percent, and that’s the biggest number since about 2012, indicating that we have a problem. A big concern for these ratings agencies is that South Africa doesn’t have a good enough track record of saying we will turn things around and then actually doing it.”

He adds, however, that there’s art and science to how the ratings agencies approach ratings, so it’s not possible to predict what they will do. “At this point, we’d rather be cautious than optimistic.” Despite this, he says that the glimmer of optimism we can focus on is that Mboweni didn’t deliver an “election year” budget. “He was frank about the challenges, and didn’t hide them under the carpet. In election year, it could have turned political rather than financial. So we have transparent leadership.”