Finance Minister Pravin Gordhan will in his delivery of the medium-term budget policy (mini budget) on Wednesday not deviate from government’s expenditure plans or fiscal framework, emerging market economist Peter Attard Montalto of Nomura said in a company note.

“In the current political context we see no shift in expenditure or breaking of the fiscal framework to accommodate populist internal ANC pressures.”

Although the ANC National Executive Committee (NEC) earlier indicated that it would call for the budget to reprioritised, Montalto expects Gordhan to ignore this.

“Overall, we think stability will be the message from the (mini budget), tackling downgrade risk where possible and delivery of structural reform.”

NO STRUCTURAL REFORM
However, markets have come to the view that Gordhan cannot alter policy, as there is no centralised leadership on structural reform, Montalto opined.

“Ultimately, it seems very unlikely that there will be any structural reforms offered that would result in the rating agencies raising their medium-run growth expectations.”

Montalto was of the view that net debt to gross domestic product would be around 47%, and that National Treasury would lower its nominal growth assumptions to 0.7% to 0.9%. This is slightly higher than the predictions of the Parliamentary Budget Office, which expects growth to be between 0.4% and 0.7%.

UNIVERSITY FUNDING
Although he expected some announcement on the implementation of a sugar tax and possibly an update from the Davis Tax Commission, he said any specific tax policy announcements are unlikely to be made in the mini budget.

“This will mean the mysterious R15-billion of unspecified 2017 tax measures and the additional R15-billion on top of that for 2018/19 will remain unspecified.”

In the current environment of student protests, government may decide to use these unspecified measures to pay for student demands.

“It would be very hard to put additional revenue in the budget at this stage and we think it is unnecessary because of the size of the contingency reserve,” Montalto said.

In the February Budget Review, there was a R6-billion reserve in the current financial year, which will rise to R10-billion in the next year and to a further R15-billion in 2018/19.

“We think National Treasury will want to keep as much of this as possible, especially in the outer years to show the rating agencies that the fiscal framework is flexible.”

Some of the contingency reserve, however, will have to be spent on higher education.

He expected that Gordhan would discuss various funding modalities for higher education, such as a “graduate tax” and more support for the National Student Financial Aid Scheme.

But because the Fees Commission (that is currently convening about the possibility of a fee-free higher education system) has not yet made a decision, National Treasury will be unlikely to be too specific in its pronouncements, Montalto said.

“We think some allocation will be made for the already announced partial fees freeze for 2017/18, which may be of the order of R2-billion to R3-billion.”

NHI AND OTHER FOCUS AREAS
He also expected some additional, small allocations towards the rollout of the national health insurance. “But because of delays (in the implementation) any major change on this front is unlikely.”

Gordhan will in all likelihood elaborate on continuing commitments where business and government are working together, as well as mentioning the targeted investment projects of the Department of Trade and Industry.

In the labour environment, there has been some progress with regard to changes to arbitration rules, but legislation on a secret ballot is still not forthcoming, Montalto said.

“What concerns us with so-called reforms in this area is that they might not be significant enough to move the dial on the economy.”

He also didn’t see any major policy changes on state-owned enterprises made in the mini budget, as National Treasury will wait for direction from the Presidency on the matter.