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SA Budget 2004
Who will win?
Strong demand or Strong rand
10%
10%
10%
10%
Model without ZAR
Model with ZAR
Manufacturing GDP
Manufacturing GDP
8%
8%
8%
8%
6%
6%
6%
6%
4%
4%
4%
4%
2%
2%
2%
2%
0%
0%
0%
0%
-2%
-2%
-2%
-2%
-4%
Mar86
Mar88
Mar90
Mar92
Mar94
Highs
andMarlowsMarMar- Mar96cannot
98
00
02
be
captured without
Rand variable
Mar04
-4%
Mar06
-4%
Mar86
Mar88
Mar90
Mar92
Mar94
Mar96
Mar98
Mar00
Mar02
Mar04
-4%
Mar06
Agriculture is a big risk
If its down 20%, GDP will fall 0.8%
15%
AGRIC GDP INDEX
30
Agriculture has no
apparent causal
impact on the rest
of GDP
Non-Agric GDP
10%
5%
0%
Assume
down 20%
-5%
10
M-86 M-88 M-90 M-92 M-94 M-96 M-98 M-00 M-02 M-04 M-06
-10%
-100%
-50%
0%
50%
Agric GDP
100%
150%
200%
Growth should recover H2,
although 2.9% is a tall order
GDP QoQ
IAM vs REUTERS
5.0%
4.5%
Median
Low
4.0%
High
3.5%
IAM
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Food price inflation will likely accelerate as the
drought takes hold
Yellow Maize Price
1900
Import Parity
Yellow Maize (R/T)
Export Parity
1700
1500
1300
1100
900
700
500
300
May-96
May-97
May-98
May-99
May-00
May-01
May-02
May-03
May-04
May-05
Our inflation forecast is bearish,
4.8% seems too benign
CPIX - IAM v REUTERS & SARB
12%
10%
8%
6%
4%
IAM
Median
High
Low
SARB
2%
0%
Mar00
Sep00
Mar01
Sep01
Mar02
Sep02
Mar03
Sep03
Mar04
Sep04
Mar05
Sep05
We’ve pencilled in a August hike,
more as a fine tuning measure than a new up-cycle
12%
11%
19%
CPIX
18%
Prime Rate
10%
17%
9%
16%
8%
15%
7%
14%
6%
13%
5%
12%
4%
11%
3%
Jan-00
10%
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Personnel income tax burden has fallen
across all income groups
25%
45%
500,000
100,000
20%
40%
15%
35%
10%
30%
5%
25%
0%
20%
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
Era of unusually low personal tax growth is
probably over
Growth in Personal Tax
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1996/97
1999/00
2002/03
2005/06
Company tax forecasts are again unrealistic
given the strong Rand
50%
Growth in Company Tax
40%
Growth in Company Earnings
30%
20%
10%
0%
-10%
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
Increases in excises and levies
are definitely inflationary
Contribution to CPIX from Fuel & RAF Levies
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Other tax issues
• Mining royalty tax
– Mining industry is still the driver of growth
– Mining houses are diversifying away from SA
– Sales based tax goes against the ability to pay principle
– Penalizes marginal mines
– But Treasury has promised an holistic approach
• Transfer tax
– What is the relation with capital gains tax
• Retirement tax
– Must decide whether to tax withdrawal or accrual
Real non-interest government expenditure
will continue to grow rapidly
Growth in Real Government Expenditure
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
19
7
/9
6
9
19
8
/9
7
9
19
9
/9
8
9
19
0
/0
9
9
20
1
/0
0
0
20
2
/0
1
0
20
3
/0
2
0
20
4
/0
3
0
20
5
/0
4
0
20
6
/0
5
0
20
7
/0
6
0
Government investment is making a comeback,
but the base is very low
14%
14%
Gov Investment
Total Investment
7%
7%
0%
0%
-7%
Dec-62
-7%
Dec-67
Dec-72
Dec-77
Dec-82
Dec-87
Dec-92
Dec-97
Dec-02
Debt reduction has been a factor
in brining down real bond yields
12.0
11.0
10.0
0.65
Real Yield
0.60
Bonds/GDP%
0.55
9.0
8.0
0.50
7.0
0.45
6.0
0.40
5.0
4.0
0.35
3.0
0.30
2.0
Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03
0.25
We are cautious on the bond market
Our forecast is for SA yields to rise
SA 10 Year Fair Value Model
6
20
Value
18
10 year
5
Model
16
4
14
3
12
2
10
1
8
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-00
Jul-99
4
Jul-98
-1
Jul-97
6
Jul-96
0
More aggressive domestic issuence will cause
some indigestion
Domestic Net Bond Issuence
35
25
15
5
-5
-15
1996/97
1999/00
2002/03
2005/06
Levels of savings and investment
remain depressed
30%
30%
GFCF/GDP
Savings/GDP
20%
20%
10%
Dec-62
10%
Dec-68
Dec-74
Dec-80
Dec-86
Dec-92
Dec-98
Long term macro policy objectives
• Raise the level of savings
– Investment will generate its own savings
• Improve education output
– Are we ready to manage it like a business?
• Reduce poverty through employment creation
– Public works programme is not going to do it
• Microeconomic policies
– What does this mean?
Thank You