Winners and losers in South Africa’s mini-budget

South African Finance Minister Enoch Godongwana delivered his budget update to lawmakers in Cape Town on Wednesday, presenting an improved macroeconomic outlook and plans to revise the country’s inflation target. 

Here’s a rundown of who will be impacted:

WINNERS

Bond investors

• Godongwana announced that the inflation target will be set at 3%, with a tolerance band of 1 percentage point. The revision is expected to enhance the country’s international competitiveness, reduce the inflation risk premium investors demand to lend to the country and curtail state borrowing, with positive repercussions for government bonds.
• The National Treasury also trimmed its borrowing requirement because it is collecting more tax than previously expected, providing a further boost for the securities.

Central bank

• Lesetja Kganyago, the governor of the South African Reserve Bank, lobbied hard for the current 3% to 6% inflation target that had been in place since 2000 to be changed and has finally got his way.
• Inflation expectations and pricing pressures are likely to ease, which should ultimately enable the bank to reduce borrowing costs.

Consumers

• Lower inflation will reduce living and borrowing costs for ordinary citizens, who’ve become accustomed to steep increases in the cost of food, electricity and other essentials.

Taxpayers

• In May, the Treasury said it would raise an additional R20 billion in taxes in the next fiscal year. Those plans may be reconsidered if additional funds that were given to the national tax agency enables it to collect the required revenue, with a final decision to be made in February.

 Construction companies

• The budget allocates additional money for infrastructure projects and elaborates on a series of measures aimed at getting private investors to support and finance them, including plans to streamline the approval process and provide credit guarantees.

LOSERS

Labour unions

• The unions argued against a lower inflation target on the grounds that it would curtail economic growth. But the Treasury said the benefits of the adjustment, to be instituted over two years, will far outweigh the costs and it can mitigate against any negative impact.

Government departments

• The Treasury will reduce non-interest expenditure by 20.4 billion rand over the next two fiscal years to take account of the lower inflation environment.
• That will require departments to tighten their belts, with a number of non-essential programs to be phased out.

Ghost workers

• An audit is under way to identify so-called ghost workers – those who get a salary but don’t work, such as individuals who have died or left the public service – and remove them from the state’s payroll.
• Partnering with the Home Affairs Department and the tax agency to analyse payroll, population and tax data, the Treasury has identified 8,854 high-risk cases that require further verification, a process that will begin next year.