2018 appears to have begun on a most positive note both globally and, for the first time in quite a while, in South Africa too.
The election of Cyril Ramaphosa as President of the ANC and the subsequent remedial action at Eskom together with numerous Hawks investigations into criminal activity surrounding state capture has brought about a more positive mood in the country. Markets have been buoyant and the local currency strong compared with a year ago. US investment bank Goldman Sachs has been particularly bullish on South Africa saying that this country might well be “the big emerging market story of 2018”. Whether or not all this signals the advent of a new dawn as many are calling it, remains to be seen. We advise caution as even in the best circumstances a great deal of work needs to be done.
Globally a very positive meeting was held at the World Economic Forum at Davos. The IMF is forecasting global growth at 3.9% for 2018/19. This positive forecast reflects the general growth momentum which has been given a boost in the US specifically by President Trump’s somewhat dramatic tax cuts.
For our part of the world, with a new political awakening in South Africa, as well as a different outlook in Zimbabwe following Robert Mugabe’s ousting, growth forecasts over the next couple of years are positive. However, compared to the global picture, SA’s growth outlook is far more muted with forecasts ranging from 0.9% (IMF) to 1.4% (SA Reserve Bank). Ways to substantially boost economic growth have to be found as a matter of urgency.
Inflation projections for SA are modest at 4.7% to 4.9%. Globally, however, due to the stronger economic growth outlook, rising inflation appears to be a concern once again. Comment by the new Governor of the US Federal Reserve, Jerome Powell, suggests that interest rates will steadily rise during the course of this year and beyond. This has had an immediate dampening effect on markets; in fact it appears to be have triggered a major correction!
Back to South Africa: apart from the now postponed State of the Nation Speech and the pending resignation or removal of the current State President, looming on 21 February is the Budget speech. Much concern is focused on how to finance burgeoning government debt and planned expenditure, both of which have become considerable burdens on the fiscus. Higher taxes are inevitable but which taxes are likely to be raised and introduced and by how much, will be the main issues to be addressed by the Finance Minister.
Which brings us rather neatly to the subject of tax saving.