“Minister of Finance, Nhlanhla Nene’s first budget provided details of the fiscal consolidation package announced in last October’s medium-term budget policy statement (MTBPS),” the agency said
“Measures to increase revenue include a 1pp increase in income tax for those earning more than 181,000 rand as well as a sharp increase in the fuel levy.”
(READ MORE: S.Africans to pay a tad more on personal income tax)
It added that measures totalling a net 8.2 billion rand for the current fiscal year appear to fall short of the treasury’s announcement in October to raise revenue by 27 billion rand over the next two years.
“Details of the Davis Tax Commission, whose findings were expected to have been included in the 2015 budget, will only be released later this year, suggesting more tax increases may come in next year’s budget,” Fitch added.
Meanwhile, non-interest expenditure will be cut by 25 billion rand in 2016 and 2017 as outlined in the MTBPS and the agency said that this will keep real spending growth to an average of two per cent.
“There will be a focus on containing goods and services spending by reducing waste and improving efficiency - a mantra for much of the past decade,” it said.
“Public sector wage growth of 6.6 per cent has been budgeted, so a key risk to public finances is that wage negotiations underway settle above this figure. Details of the government’s 24 billion rand assistance package for state-owned electricity company Eskom and its financing were not forthcoming.”
Fitch further stated that despite efforts to raise revenue and cut non-interest expenditure, the deficit forecast for 2016 has been revised up, to 3.9 per cent of GDP.
“The National Treasury now expects a deficit of 3.9 per cent of GDP for 2015, down slightly from 4.1 per cent at the MTBPS, but this is largely due to upward revisions to GDP already announced last year.”
It explained that efforts at implementing the National Development Plan remain piecemeal, raising concerns about its effectiveness in boosting growth to the eventual target of five per cent.
(READ MORE: Communication key to success of NDP)
“The outlook for the public finances will form an important part of Fitch’s next scheduled review of South Africa's sovereign ratings on 5 June,” said the agency.
“Our Negative Outlook and 'BBB' rating for South Africa recognise the growth and fiscal consolidation challenges, while acknowledging the economy’s credit strengths and shock absorbing capacity through a floating exchange rate, strong banking system and financing flexibility.”