Budget the good kind of ‘boring’ – will put more money in taxpayers’ pockets

Budget 2022 has brought promises of more tough love for state-owned entities (SOEs) and more money being put back in taxpayers’ pockets, as well as conditions for greater investment in the economy, from a finance minister who clearly sees the risks and knows that we have to proceed with caution.

Delivering his inaugural budget speech on Wednesday, finance minister Enoch Godongwana stated that interventions to chart a course towards growth and fiscal sustainability to narrow the budget deficit and stabilise debt, as well as offering income and employment support, tackling service delivery shortcomings and tax relief cannot replace the structural changes our economy needs.

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Prudent budget

Prof. Bonke Dumisa, an independent economist, called the budget prudent and says it is clear that the minister and his team applied their minds. He also liked the idea of putting money back in people’s pockets by not increasing the levies for fuel and the Road Accident Fund (RAF).

“The new income tax threshold will mean that people in the lower income group would have a whole R14 000 per year extra in their pockets. The 1% decrease in corporate tax is also significant because it will encourage investment and make us a more attractive investment destination.”

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Best budget we could wish for

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says this was the best budget we could have asked for.

“The minister acknowledged that we should borrow less and not get too used to windfalls such as higher commodity prices.

“However, I am worried by the minister’s higher growth expectations, because it could affect us for years to come if these expectations are too high. I think it was a very good idea not to increase fuel levies. It will be tricky to limit the growth of the public sector wage bill.”

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Debt-to-GDP ratio

Dr. Elna Moolman, head for SA macroeconomic, fixed income and currency research at Standard Bank, says as expected, revenue outperformance was partly used for a permanent reduction in the debt-GDP ratio and partly absorbed by expenditure increases.

“Immediate signals are encouraging, but medium-term risks persist. Investors will also be encouraged by government’s commitment to fiscal consolidation, wage bill curbs, disciplined SOE support and permanent increases in social grants only if accompanied by a sustainable funding plan.

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Boring and market-friendly budget

Johann Els, chief economist at Old Mutual Investment Group calls the budget “boring and market-friendly”, but qualifies it being boring as a good thing as Moody’s could revise its outlook from negative to stable.

“While South Africa is clearly not out of the woods regarding its fiscal situation yet, we have come a long way and we are now in a vastly improved position with significant less debt default risk compared to two years ago. Plus, we are strongly, albeit slowly, moving in the right direction.”

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Little new information

Mike Adsetts, deputy chief investment officer at Momentum Investments, said the budget gave little new information to address three major concerns: how a more formal, permanent social relief of distress grant would be structured and financed, how the public sector wage bill will be contained, and how its “tough love” sentiment towards state-owned enterprises will be shown.

Rowan Burger, head of client strategy at Momentum Metropolitan, said no increase in the RAF levy is of grave concern, as its deficit is projected to rise from R425 billion to R553 billion by 2024.

“We urgently need structural reform here.”

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Budget trade-offs

Godongwana said in his speech that difficult and necessary trade-offs are required. The pandemic and continued imbalances in global value chains have limited the pace of the world’s economic recovery.

“The South African economy has not been insulated from these global developments. We have revised our economic growth estimate for 2021 to 4.8%, from 5.1% at the time of the Mid-term Budget Policy Statement (MTBPS).”

Tax collections have been much stronger than expected, with the positive surprise coming mainly from the mining sector’s higher commodity prices.

“However, one swallow does not a summer make. The improved revenue performance is not a reflection of an improvement in the capacity of our economy and we cannot plan permanent expenditure on the basis of short-term increases in commodity prices.”

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Putting money back in your pocket

This is how Godongwana puts money back in consumers’ pockets:

• R3.33 trillion over the next three years to support vulnerable and low-income households
• an additional R32.6 billion for financial support to current bursary holders and first-year students
• R24.6 billion for provincial education departments to address the shortfalls in teacher compensation
• an increase in the old age, war veterans, disability and care dependency grants of R90 in April and a further R10 in October
• a once-off increase of R20 in foster care and child support grants in April
• personal income tax brackets and rebates will be adjusted by 4.5 percent which means that the annual tax-free threshold for a person under the age of 65, will increase from R87 300 to R91 250
• medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members
• no increases in the general fuel levy on petrol and diesel to provide tax relief of R3.5 billion
• no increase in the Road Accident Fund levy.