From stocks to consumer spending – SA VAT hike could deepen economic malaise

By Adelaide Changole

(Bloomberg) – Johannesburg’s retail stocks will likely bear the brunt of tax increases, should Finance Minister Tito Mboweni target consumers with revenue-raising measures in his budget on Wednesday.

Consumer spending power in Africa’s most-industrialised market is under severe strain, with confidence at a two-year low against a backdrop of a 30% unemployment rate and an economy that hasn’t achieved a 2% annual growth rate since 2013. Economists see an outside chance that Mboweni will increase the valued-added tax rate, with such a move predicted by five out of 19 surveyed by Bloomberg.

The blow from a higher VAT rate would be felt more by clothing retailers than by food stores as consumers adjust, said Henre Herselman, a derivatives trader at Anchor Private Clients.

Increasing taxes could further reduce consumer spending and perpetuate the economic malaise, said Sandy McGregor, a money manager at Allan Gray. Raising the VAT rate is politically unpalatable, while increasing personal tax rates may accelerate emigration.

The market hasn’t priced in a VAT increase and a decision to do that could see retailers take a knock, said Investec Wealth & Investment Chief Investment Strategist Chris Holdsworth.

Higher taxes would translate to lower disposable income, which would filter through to stocks, said Casparus Treurnicht, a money manager at Gryphon Asset Management. If this happens, “expect depressed valuation levels for longer.”

More broadly, investors will be looking to Mboweni for signs of a plan to rein in debt and stave off the loss of South Africa’s last investment-grade credit rating in a review by Moody’s Investors Service due next month. Bailouts for power utility Eskom and other state-owned companies, plus a wage bill that accounts for 35% of spending have contributed to pressure on government finances.

“The key objective of this budget should be to table a plausible plan to manage the wage bill and interim funding for Eskom,” McGregor said by email.

For Investec’s Holdsworth, the primary concern for investors is the outlook for debt as a ratio of gross domestic product. He cited Treasury projections showing debt surging to 81% of GDP in the 2028 fiscal year unless urgent action is taken. “The first thing that investors want to see is that peak, and they want to see where it is going to start coming down.”

Here are more views from investors on what they would like to hear from Mboweni:


  • Increased spending on infrastructure, which is necessary to spark growth;
  • Greater allocation to the South African Revenue Service, to enable it to tackle tax issues; and
  • Higher funding for the National Prosecuting Authority.


  • The state payroll is bloated and any indications to concretely deal with this would be beneficial;
  • It would be positive if state employees’ compensation was linked to productivity;
  • No more free bailouts to state-owned enterprises; and
  • No increase to VAT.


  • The public wage bill must be managed so that it does not grow faster than inflation; and
  • Set out plans to restore parastatals to solvency.


  • Allocating funds to alternative methods of energy production would definitely be cheered;
  • Additional funding to non-key state-owned enterprises needs to stop; and
  • Focus on reducing the government wage bill and expenditure.

Adrian Cloete, PSG Wealth:

  • Plans for a legal framework to make sure South Africa is well-placed to attract investment; and
  • A government focus on cutting expenses and end to the wasteful expenditure seen over the past 10 years.