Positive news to emerge from the Medium-Term Budget Policy Statement

Berry Everitt, CEO of the Chas Everitt International property group, says the most positive news to emerge from the Medium-Term Budget Policy Statement delivered by Finance Minister Tito Mboweni today is that the economy is expected to “rebound” in the final quarter of 2020, and return to positive growth next year of 3,3%, following an expected decline of 7,8% this year.

“This should provide further impetus for a residential property market that has already rebounded on the back of the lowest interest rates in decades and has delivered record numbers of home sales every month since June. The sector of the market with home prices below R1,5m is especially active, and first-time buyers account for more than 60% of transactions in this category, which means the market is actually expanding. Home prices are currently also up by more than 2% year-on-year, contrary to what we expected after the hard lockdown in the second quarter.”

A further MTBPS positive he says was the allocation of specific resources to support the infrastructure development and mass employment programs outlined by President Ramaphosa earlier this month, with R2,2bn going towards social housing (Flip) subsidies and more than R340bn being made available to build new hospitals in KZN and the Western Cape, redevelop 12 harbors, build new schools and improve more than 3000 others, and construct new dams, roads and rail networks. “Unemployment is currently one of SA’s biggest problems and we hope that these projects will be implemented without delay and will really create additional permanent jobs, followed by increased demand for homes which will further sustain the real estate market.”

It was also encouraging, he says, that the Minister did not announce any specific plans at this stage for personal or company income tax increases, although the consolidated budget deficit is now expected to reach 15,7% of GDP this year, up from the 6,4% that was projected in February.

“Clearly, Treasury hopes to reduce this deficit at least partly by cutting public spending, and more especially the public sector wage bill, which is now equal to 11% of GDP. In this regard, we support the proposal for a general public sector pay freeze and for pay cuts at the top level of all government departments and SOEs.

“However, much more needs to be done. The failing SOEs themselves, such as Eskom and SAA, remain the biggest drain on public finances, and obstacles to the private sector investment that SA really needs. So it makes no sense for the government to continue to give any further grants and bailouts to these institutions. The funds could be put to much better use to provide real support to small businesses and the business sectors that are the biggest job creators – and also to reduce SA’s colossal debt. Gross debt is currently equal to 81,8% of GDP (up from 65,6% in February) and is now only expected to stabilize at 95% of GDP in three years’ time. This is an extremely risky position for SA to be in and it is going to take great fiscal discipline and determination to get out of it.”

Source Credit: https://www.privateproperty.co.za/advice/news/articles/positive-news-to-emerge-from-the-medium-term-budget-policy-statement/7764

Leave a Reply