Budget pain could have been much worse

Finance Minister Tito Mboweni surprised many people – from economists to taxpayers – yesterday with a budget which was, in many respects, much softer than most had expected.

There was no increase in VAT, nor a one-off tax levy. On the contrary, the minister announced slight relief for taxpayers earning less than R500,000 a year, as well as scrapping transfer tax on properties valued at less than R1 million.

Financial pain will come through increases in sin taxes on alcohol and tobacco, as well as a hike in the levy on fuel to pay for road maintenance and the Road Accident Fund.

The decision to not increase personal and business taxes is an acknowledgement of the poor current state of the economy. Mboweni said the weaker-than-expected 0.3% economic growth and the sluggish employment and wage growth affected personal income tax collection.

The recession in the first half of 2018 also played a role as dividend tax did not yield results and corporate income tax underperformed. Following the 1% VAT increase implemented in 201819, growth in VAT collection has moderated.

This means the country’s tax revenue shortfall for 2019-20 stood at R63.3 billion – much higher than the R52.5 billion projected in the 2019 medium term budget policy statements.

Total income for the year to February 2021 is projected to be R1.58 trillion, with expenditure at R1.95 trillion and a consolidated budget deficit of R370.5 billion, which is 6.8% of gross domestic product (GDP).

Total national debt is projected to spiral to its highest level yet, at R3.56 trillion, or 65.6% of GDP.

Mboweni announced increases in social grants and that the total number of grant beneficiaries is expected to increase by one million in the medium term to 19 million people by 2022-23.

However, he also set himself up for conflict with unions by planning to slice the public service wage bill by R160.2 billion for national and provincial departments and national public entities.

While government agreed its employees should be fairly paid, their salary demands should balance the broader needs of society, Mboweni said.

Public servant salaries have increased by 40% over the past 12 years and that growth in the wage bill has started to overcrowd spending on capital projects for growth and service delivery.

State-owned enterprises (SOEs) will be boosted with a further R129 billion over the next three years, but the majority of this expenditure would go towards Eskom. SOEs will receive less financial support from government as Treasury looks to get a handle on rising debts.

Government will transfer R112 billion to Eskom for the utility to meet its short-term financial obligations over the next three years as it begins the unbundling process. The utility will be separated into three units – generation, transmission and distribution – which will soon have their own boards and management structures.

R16.4 billion has been allocated to the integrated national electrification programme, which will fund 560,000 new connections to the power grid over the medium term. A total of 15,000 households will be provided with stand-alone power systems per year. Government will transfer R15.7 billion to municipalities and Eskom to fund this programme.

South African Airways, which is under business rescue, will receive R16.4 billion over the medium term to repay guaranteed debt and interest costs. Additional funding is anticipated to cover restructuring costs in line with the business rescue plan.

R3.2 billion was allocated to the public broadcaster, the SABC, in 2019-20. R2.1 billion has already been transferred to help it pay its bills. The remaining R1.1 billion is expected to be transferred by 31 March.

– rorisangk@citizen.co.za

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