Medium-Term Budget Policy Statement

by | Dec 19, 2016 | NEWS

The Medium-Term Budget Policy Statement (MTBPS) is a government policy document that outlines the government’s fiscal policy objectives and spending priorities over a three-year period.

The MTBPS also sets out the economic context in which the forthcoming budget (February 2017) will be presented.

With the slow-down in the South African economy, tax revenues have fallen short of expectations. This means that government spending will need to be cut and taxes will need to be raised.

  • The anticipated budget shortfalls are R36 billion and R52 billion in the next two years.
  • Following a series of expenditure cuts, the MTBPS proposes a further R26 billion in reductions to the public expenditure ceiling over the next two years.
  • New proposed tax measures amount to R13 billion in the 2017-2018 financial year. Together with the higher taxes indicated in the 2016 budget, total revenue increases will amount to R43 billion over the next two years.

With a great deal of pressure on the budget, government spending will be focused on core priorities and existing resources will have to be shifted to deal with more critical needs.

Credit ratings agencies have taken careful note of the contents of this MTBPS.  Fitch has just issued a report stating that “South African MTBPS Measures Will Not Stem Rising Debt” – this does not bode well for December 2016, when the ratings agencies will reassess South Africa’s credit rating.  A further downgrade in our country’s credit rating would indicate a higher investment risk, prompting higher borrowing costs and large capital outflows.

The MTBPS typically does not include specific tax announcements, but it does give an indication of future tax amendments.  It is unlikely that the additional measures such as the proposed changes to trust legislation, sugar tax, the tyre levy and the Special Voluntary Disclosure Programme will be enough to raise the additional R43 billion tax revenue which is required.

With our tax-base already under great pressure, it will be interesting to see exactly how National Treasury intends to collect this extra tax revenue.   It seems likely that taxpayers could be facing some unwelcome tax increases in February 2017, when a new blend of tax proposals will be announced.