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The
reason the VAT collections figures and projections will be
important is because they will give an indication as to
how interest rates are affecting consumption activity and
hence provide an indicator for the equity market.
Strong growth will also indicate the outlook for the
budget surplus that is expected in the next year. Low or
slower growth, however, may cause the surplus projections
to change a tad.
Revenue changes for 2008 would give an indication of
potential tax changes in February next year, when the next
national Budget is released, as an increase may lead to
further favourable tax treatment. The opposite, of course,
also holds true.
The government spending projections for 2008 are also
important as they reflect the progress on capital and
social spending and ability to roll this out, currently a
major stumbling block.
"VAT could be interesting as it gives us a good idea
as to what is happening with the consumer and is an
indicator for the equity market," said economist from
Macquarie First South Securities, Gina Schoeman.
Schoeman added that she did not expect a proposed change
in the VAT rate.
The Budget in February announced an increase of 3.4
billion rand in VAT collections for the 2006/07 fiscal
year to 134.6 billion rand. The percentage change between
2005/06 and 2006/07 was reported at a huge 17.7% and any
changes in this will certainly be an important signal.
Economist from Efficient Group, Nico Kelder, said he did
not expect the inflation target to change despite the fact
that CPIX inflation has been above the upper 6% limit for
five months in a row. CPIX projections, though, would have
to change.
"CPIX expectations will have to change - he doesn’t
have a choice," said Kelder.
This time last year, Finance Minister Trevor Manuel said
that South Africa’s inflation target, the anchor of the
country’s monetary policy, will remain unchanged at a
range of 3-6% CPIX (headline consumer inflation less
mortgage rate changes) for the next year.
At the same time, he said he would like to "signal
confidence" that South Africa’s inflation rate
would remain within the band.
In February it was announced that the South African
government’s revenue collections for the 2006/07
financial year had exceeded the plan by some 29.4 billion
rand, heralding an expected overall 2006/07 budget surplus
of 5.2 billion rand, or 0.3% of GDP.
In last October’s Medium Term Budget Policy Statement a
sharp increase - to 466.4 billion rand from 446.4 billion
rand estimated in last February’s National Budget - was
attributable largely to higher-than-expected collections
in corporate and individual income tax, but even this
large revision has now been surpassed. Total revenue for
2006/7 was expected at 475.8 billion rand.
As a result, the government’s expected national budget
deficit for 2006/07 of 0.4% of GDP has been revised to a
surplus of 0.3%. This also differs markedly from the
originally expected 1.5% deficit of GDP in the February
budget the year before.
The Treasury also revised the expected deficit in 2007/08
to a surplus of 0.6% of GDP, with revenue increasing to
544.6 billion rand from the 543 billion estimated in
October.
This means that the surplus in 2007/08 has also increased
from an originally anticipated 0.5% to 0.6%. A very small
deficit is then forecast for 2008/09 of 0.1%, growing to
-0.4% in 2009/10 as expenditure grows markedly in those
years to 594 billion rand and then 650.3 billion rand.
The tax to GDP ratio was also forecast to increase to
28.1% in 2007/08, but then drops to 27.6% and 27.0% in
2008/09 and 2009/10 respectively.
The new data is set for release at 14:00 on Tuesday, 30
October, and will be keenly monitored by the bond and
equity markets.
Source
: The Times - Johannesburg,Gauteng, South Africa, dated
24/10/2007
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