The 2009 MTBPS: Managing a fiscal calamity
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The 2009 MTBPS: Managing a fiscal calamity Jac Laubscher Group Economist: Sanlam Ltd. Parliament 3 November 2009. 2009/10 vs. 1992/93: back to square one. The fiscal deterioration in 2009 is extremely sharp. Tax revenue -6,2% vs. 2008/09

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The 2009 MTBPS: Managing a fiscal calamity Jac Laubscher Group Economist: Sanlam Ltd.

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The 2009 mtbps managing a fiscal calamity jac laubscher group economist sanlam ltd

  • The 2009 MTBPS: Managing a fiscal calamity

  • Jac Laubscher

  • Group Economist: Sanlam Ltd.

  • Parliament 3 November 2009


2009 10 vs 1992 93 back to square one

2009/10 vs. 1992/93: back to square one


The fiscal deterioration in 2009 is extremely sharp

The fiscal deterioration in 2009 is extremely sharp

  • Tax revenue -6,2% vs. 2008/09

  • in spite of the recession being relatively moderate

  • tax revenue has become more cyclical


Government finances 2009 10 vs 1992 93

Government finances: 2009/10 vs. 1992/93


Corporate income tax of gross operating surplus

Corporate income tax (% of gross operating surplus)


The fiscal deterioration in 2009 is extremely sharp1

The fiscal deterioration in 2009 is extremely sharp

  • Tax revenue -6,2% vs. 2008/09

  • in spite of the recession being relatively moderate

  • tax revenue has become more cyclical

  • Expenditure +17,6% vs. 2008/09

  • above-budget increase in wage bill, with long-term consequences

  • adds 2% of GDP to debt over MTBPS term

  • Budget deficit 7,6% vs. 1% of GDP in 2008/09

  • Government debt from 22,6% to 29,2% of GDP (contingent liabilities to be added)

  • Increasing cost of debt will constrain discretionary spending


Bond yield vs debt gdp ratio

Bond yield vs. debt/GDP ratio

Debt/GDP

2012/13

Real bond yield


The medium term outlook for revenue

The medium-term outlook for revenue

  • Don’t over respond – we have time on our side

  • Macroeconomic assumptions are conservative, but global prospects are uncertain

  • Debt/GDP will continue rising beyond MTBPS

  • Tax burden too high to accommodate further increases (SA 32% vs. 18,2% average for middle income countries)


Fiscal sustainability

Fiscal sustainability


The medium term outlook for expenditure

The medium-term outlook for expenditure

  • Improvement is excruciatingly slow; expenditure/GDP remaining high

  • Expenditure/GDP needs to be reduced more aggressively (SA 30.1% vs. 18.6% average for middle income countries)

  • Expenditure cannot just be added, priorities need to be redefined

  • Pursuit of (non-contributing) welfare state unusual for stage of development; social protection equals 14% of consolidated expenditure

  • Greater efficiency and effectiveness in public expenditure is non-negotiable: compensation of employees equals 57% of current payments


Macro economic policy

Macro-economic policy

  • Inflation targeting

  • Responsibility remains with NT

  • Reasoned approach, acknowledging complexities

  • Discussion with SARB in line with flexible approach to IT

  • Commitment to low inflation remains

  • International debate about whether financial stability should be added as a monetary policy objective; about interest rates being too low, not too high


Prime overdraft rate vs household debt burden

Prime overdraft rate vs. household debt burden

Household debt

Prime rate


Macro economic policy1

Macro-economic policy

  • The value of the rand

  • Rand is overvalued

  • Intervention not the answer: too expensive

  • Competitiveness through greater productivity, not through depreciating currency

  • Try reducing volatility: encourage greater two-way trade through exchange control relaxation

  • Exchange rate volatility linked to excessive rand liquidity and volatility in commodity prices

  • Explore further options, e.g. commodity stabilisation fund, macro-hedging


Macro economic policy2

Macro-economic policy

  • Growth strategy

  • In need of a new, more labour absorbing growth strategy

  • A collection of comments rather than a comprehensive, cohesive strategy

  • A combination of ideas from the past and searching for new ideas

  • Macro-economic stability is foundational

  • The social democratic developmental state is a difficult model

  • First focus on getting the basics right, e.g. education

  • Government dis-saving is unwelcome turn

  • Reduce spending and taxes


Worrying trends

Worrying trends

  • Permanent increase in expenditure/GDP ratio

  • Pressure to increase tax burden

  • Increasing debt/GDP ratio and higher state debt cost

  • Upward pressure on real long-term interest rates

  • Reappearance of government dissaving

  • Lack of cohesive macroeconomic policy


The 2009 mtbps managing a fiscal calamity jac laubscher group economist sanlam ltd

Thank you!

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