1. The 2008 National Budget: A Remarkable Document!
Jac Laubscher
Group Economist
26 February 2008

2. Constraints Global economic uncertainty
Downwardly revised growth forecasts
Eskom/ electricity crisis
Perceived political pressure post-Polokwane

3. Assessment A remarkable budget A bold budget
A budget that oozes confidence
Long-term vision
Long-term growth potential
Sustainable growth
Embracing globalisation
Modernisation of the state
Upward revisions to revenue projections
Growth orientation
Exchange control relaxation

4. Perceived risk to policy continuity
Anti-cyclical fiscal policy
Structural vs. cyclical issues
Inflation targeting
Policy regime vs. policy objective
Much of Polokwane proposals already government policy
Role of government has been increasing already
Wait-and-see till after 2009: MTB not cast in stone

8. Macroeconomic background
Uncertain outlook for global economy, including commodity prices
Lower growth
Large current account deficit, under upward pressure
High inflation, set to rise further before declining, and with upside risk
Weakening exchange rate in response to declining portfolio inflows

9. Rand vs. comparable currencies
Source : I-Graph

10. Macroeconomic projections
2007
2008
2009
2010
Oct 07
Feb 08
GDP (%)
4.9
5.0
4.5
4.0
4.8
4.2
5.3
4.6
CPIX (%)
6.5
7.1
4.7
C/A (%)
-6.7
-7.2
-6.9
-7.3
-7.7
-7.8
-8.0

11. Macroeconomic projections comparison
2007
2008
2009
2010
Feb 08
SIM
GDP (%)
5.0
5.1
4.0
3.6
4.2
4.3
4.6 ?
CPIX (%)
6.5
7.1
4.9
4.7
C/A (%)
-7.2
-7.1
-7.3
-7.8
-7.0
-8.0

12. Exchange controls Timing speaks of confidence Impact on the rand?
Estimated outflows up to R140 bn.
Flexible exchange rate will act as regulator
Encourage two-way trade
Enhanced hedging possibilities
Less volatility
SARB coming to end of reserve accumulation?
Controls replaced by surveillance?

13. Electricity crisis
Strong argument that electricity tariffs should increase
Challenge is to manage economic impact
Electricity levy of 2c/kwh introduced
Long-term environmentally sensitive energy policy to override short-term electricity supply problems
Eskom to get R60 billion over next 5 yrs (R20 billion over next three years)
Format not fully specified, but will not be grant
If Eskom requests credit guarantee, it will be granted

14. Consolidated national budget
2007/08
2008/09
2009/10
2010/11
Revenue
% of GDP
28.4
28.7
28.6
Expenditure
27.4
27.6
28.1
27.9
Budget balance
20 331
18 486
16 018
20 526
1.0
0.8
0.6
0.7

15. Revenue projections +12% in 2008/09, +10.8% p.a. next three years
Higher base
Higher inflation
Broadening of the tax base
new individual tax payers in 2007 because of increased employment and improved compliance
Simplification of tax compliance for small businesses could draw more into formal tax net
Rising tax-to-GDP ratio

17. Tax-to GDP ratio

18. Consolidated government expenditure
Pressure on departments and lower spheres of government to perform
Average real growth reduced from 6.4% to 6.1%
Priorities are infrastructure, social services (incl. social grants)
Government expenditure continuing to take up more of GDP

20. Government expenditure to GDP ratio

21. Government debt Debt to GDP ratio declining
Interest on public debt as % of GDP declining
Creating room for other public sector borrowers; PSBR set to increase
Anchoring long-term interest rates

23. Long-term potential growth
Corporate tax rate reduced
Simplified tax dispensation for small business
Infrastructure spending
Skills enhancement
Improved government savings
Industrial policy incentives (qualified)
Emphasis on productivity, competitiveness, and export capacity
Could be bedeviled by big government, taking redistribution too far

24. Conclusion Accelerating growth? Yes Advancing social development? Yes
Reducing inequality? Yes