MEDIA RELEASE

MEDIA RELEASE THE “BIGGEST” MINI BUDGET EVER: THE RIGHT INTENTIONS BUT THE WRONG NUMBERS 25 October 2017 MAARTEN ACKERMAN, CHIEF ECONOMIST AND ADVISORY PARTNER OF CITADEL, COMMENTS: Minister of Finance Malusi Gigaba today delivered one of the most important mini budgets in history. Unfortunately, in spite of appropriate objectives and intentions, the Minister’s hands are tied by the prevailing situation. The numbers paint a bleak picture of our current circumstance. As the country is going through a confidence crisis on the back of policy and political uncertainty, the economy is grinding to a halt. On the back of lower economic growth, we will be facing a fiscal cliff if we cannot turn the growth trajectory around. Numbers presented in the budget today realistically reflected these developments. Compared to the February 2017 Budget, Minister Gigaba adjusted the growth outlook down to more realistic numbers, increased the deficit target to over 4% of GDP and indicated a sharp increase of debt to GDP of closer to 60% over the budget framework. This will result in government interest payments increasing by around R6 billion over the period. “We are giving an honest view of the challenges facing our country,” Gigaba says in the written speech. “It is not in the public interest, nor is it in the interest of government, to sugar-coat the state of our economy and the challenges we are facing…Improving our economic growth outlook over the period ahead remains our greatest challenge” Despite the Minister mentioning government’s full commitment to return confidence, get growth – specifically inclusive growth – going, sort out the SOEs and create more jobs, the deterioration of the fiscal framework will act as a headwind to achieve these objectives. Unfortunately rating agencies will view the deteriorating framework as unfavourable, despite all the positive intent from government to turn the fiscal situation around. Any further increase in the unstable political situation from now until December will most certainly result in a local currency downgrade. Even if the political situation stabilises after December, the ratings agencies are unlikely to let us buy more time than perhaps until the February budget, given the current fiscal outlook. The currency has already reacted negatively on today’s numbers and another downgrade will put significant pressure on the currency and long term government bond yields, which will further increase interest payments as a percentage of the budget. Further weakness in the currency will increase inflation and put the South Africa Reserve Bank back in a position where it cannot drop rates to stimulate the economy. Maybe Minister Gigaba was correct when he said today “Restoring confidence is the cheapest form of stimulation.” A member of the Peregrine Group. Citadel Investment Services Proprietary Limited is licensed as a financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002.

HILARY DUDLEY, MANAGING DIRECTOR OF CITADEL FIDUCIARY, COMMENTS: It is positive that the Minister has acknowledged public concerns around the perceived abuse of tax revenue in the context of growing fears of corruption and state capture. There have been increased calls for a so-called “tax revolt” and the Minister has made it clear that this will not be tolerated. However, it remains to be seen which measures government will implement to address the growing dissatisfaction of citizens on these issues. The general view is that they cannot kill the goose that lays the golden egg by continuing to increase taxes without a concomitant improvement in service delivery. The R50 billion hole in revenue cannot only be filled by increasing taxes but must also be addressed by the more efficient use of revenue and tightening of government’s belt. The Minister also waved a red flag concerning international tax compliance and structuring, something which has increasingly been in the public domain since the release of the Panama Papers and which the Davis Tax Committee has addressed in several of its reports. This is more likely to come to the fore since the end of the Special Voluntary Disclosure Programme at the end of August. This, along with the reference to the common reporting standards and global tax transparency, can be viewed as a clear warning shot across the bows of tax residents who may still hold grey money offshore. The compliance net is tightening, but it remains to be seen whether SARS has the capacity to deal with these issues. Gigaba has also acknowledged various operational delays and frustrations which taxpayers are experiencing, which some commentators have attributed to a loss of skilled staff. It remains to be seen how these issues will actually be addressed. -EndsA member of the Peregrine Group, Citadel Investment Services Proprietary Limited is licensed as a financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002. Kindly note that this article does not constitute financial advice. All information and opinions provided are of a general nature and are not intended to address the circumstances of any individual. Additional information: Citadel is a specialist wealth manager with over 20 years’ experience in providing bespoke solutions for high net worth individuals. Through character-rich engagement and building strong relationships based on mutual respect and trust, Citadel enables its clients to explore the true potential of their hard-earned money. The best fiduciary, risk and asset management expertise is used to strategise, implement and manage a financial roadmap for its clients and their family. Visit www.citadel.co.za for more information. @Citadel SA Issued on behalf of Citadel Investment Services by: Cambial Communications Gillian Findlay/Alex Honegger 011 486 3561/082 330 1477/082 646 1770 [email protected] [email protected]