Mboweni announced intentions to stabilise government debt at 88.9% of GDP in 2025/26 and see it decline thereafter.
Mboweni seemed optimistic, saying this optimism stems from “a much-improved economic outlook”.
This outlook is based on global economic growth being expected to rebound to 5.5% in the coming year, and 4.2% next year. This is all, of course dependent on the successful rollout of Covid-19 vaccines globally.
Also Read: Read the 2021 Budget Speech in full
He foresees growth of 3.2% in Sub-Saharan Africa, which is expected to assist the local economy to rebound by 3.3% in 2021, following the previous year’s contraction of 7.2%.
Economic reforms showing progress
Mboweni said the country’s structural economic reforms are showing progress, which should overcome the weaknesses which limit economic growth.
He seemed particularly proud of operation Vulindlela, which was introduced last year with the goal of accelerating the pace of high impact reforms.
“I want to thank my Cabinet colleagues for their support of Operation Vulindlela and assure members that Deputy Minister Dr David Masondo and the team from the Presidency and National Treasury remain hard at work with the relevant departments to ensure that implementation of the remaining reforms is appropriately funded and accelerated.”
The minister promised lowered barriers to entry, raised productivity and lowered costs of doing business.
He hopes to leverage the country’s extensive road networks to bolster growth, and to this end has committed to a R791.2 billion infrastructure investment drive to improve and repair this network, as well as railways, dams and bridges.
He warned, however, that efforts to expand infrastructure “will be wasted if the end user does not pay a cost-reflective tariff for usage”.
This could be seen as a signal that e-tolls are going nowhere for the foreseeable future.
Plans for job creation
Another point of pride for Mboweni was his budget’s explicit support for job creation and economic transformation.
“Our R6.2 trillion spending envelope over the Medium-Term Expenditure Framework gives expression to the Economic Reconstruction and Recovery Plan. This is not an austerity Budget. Our fastest-growing area of spending is our investment in the future-capital payments,” he announced.
He announced that R83.2 billion has been made available for public employment programmes since the 2020 Special Adjustments Budget, with an additional R11 billion now being pumped into the Presidential Youth Employment Initiative. This takes the total funding for employment creation to nearly R100 billion.
Land restitution also got some attention, with 1409 restitution claims set to be finalised over three years, at a cost of R9.3 billion.
“The Department of Agriculture, Land Reform and Rural Development has also set aside R896.7 million for post-settlement support. This will include the recruitment of approximately 10 000 experienced extension officers.”
Furthermore, R7 billion is being made to the Land Bank to resolve the bank’s current default and re-establish the development and transformation mandate.
The township economy stands to benefit from R4 billion over the medium term from the Department of Small Business Development.
The Department of Tourism’s R540 million Tourism Equity Fund (TEF) is also expected to help the tourism industry recover over the medium term.
‘We’re not swimming in money’
Mboweni sought to dispel an “incorrect notion” that government is “swimming in cash”.
While admitting that the country is in a better place compared to last October, he warned that his assessment from the June Supplementary Budget still stands, and our public finances are dangerously overstretched.
The country will continue to have a borrowing requirement will “well above R500 billion in each year of
the medium term despite the modest improvements in our fiscal position”.
This means that gross loan debt will increase from R3.95 trillion in the current fiscal year to R5.2 trillion in 2023/24.
“We owe a lot of people a lot of money. These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African
“We must shore up our fiscal position in order to pay back the massive obligations we have incurred over the years.”
Massive tax shortfall looming
Mboweni said government this year expects a R213 billion tax shortfall, which means only R1.21 trillion in taxes are expected to be collected during 2020/21.
“This is the largest tax shortfall on record. In 2021/22 government expects to collect R1.37 trillion, provided our
underlying assumptions on the performance of the economy and tax base hold.”
To help fill the coffers, the following tax policy proposals were made:
“1. The corporate income tax rate will be lowered to 27 per cent for companies with years of assessment commencing on or after 1 April 2022. This will be done alongside a broadening of the corporate income
tax base by limiting interest deductions and assessed losses.
We will give consideration to further rate decreases to make our tax system more attractive. We will do this in a revenue-neutral manner. We also intend to leverage the insights of the Davis Tax Committee as we undertake this reform.
2. The personal income tax brackets will be increased by 5 per cent, which is more than inflation. This will provide R2.2 billion in tax relief. Most of that relief will reduce the tax burden on the lower and middle-income households.
This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after 1 March 2021.
3. Fuel levies will be increased by 27 cents per litre, comprising 15 cents per litre for the general fuel levy, 11 cents per litre for the Road Accident Fund levy and 1 cent per litre for the carbon fuel levy.
4. An 8 per cent increase in the excise duties on alcohol and tobacco products.”
Sin taxes are going to hurt:
Those hoping to drown their sorrows following the speech have some more bad news, in that from today the following increases apply to sin taxes:
a. A 340ml can of beer or cider will cost an extra 14c
b. A 750ml bottle of wine will cost an extra 26c
c. A 750ml bottle of sparkling wine an extra 86c
d. A bottle of 750 ml spirits, including whisky, gin or vodka, will
increase by R5.50
e. A packet of 20 cigarettes will be an extra R1.39c
f. 25 grams of piped tobacco will cost an extra 47c
g. And a 23 gram cigar will be R7.71 more expensive
The minister said that since it has become clear that excessive alcohol consumption can lead to negative social and
health outcomes,, it is expected that higher prices would lead to “lower consumption of alcohol products with positive spinoffs.”
Finally Sars is said to be “expanding specialised audit and investigative skills in the tax and customs areas to renew its focus on the abuse of transfer pricing, tax base erosion and tax crime”.
Mboweni says the tax man will establish a dedicated unit to improve individual tax compliance among those with “wealth and complex financial arrangements”.
He warned that the first group of these have already been identified and will receive communication during April 2021.