Budget 2021: What wasn’t said was the best and biggest news

‘Best we could expect’

Wits University’s Prof Jannie Rossouw said the budget was the best we could have expected under the circumstances.

He was happy that personal income tax relief will be higher than inflation and he welcomed the lowering of the corporate income tax rate.

“However, we must remember that all of this rests on the ability of the government to control its salary bill. The amount that has been budgeted for this will only make provision for kerf adjustments and it can be expected that there will be a lot of fighting over this.”

ALSO READ: Budget 2021: Good news on income tax, bad news on booze, smokes and fuel

Rossouw also welcomed the fact that government debt will remain under 90% of GDP to keep the country away from the fiscal cliff. He feels confident this will be sufficient to avert future downgrading by credit agencies.

“Economic growth projections look good, but I do not think we will be able to erase the damage within the next three years. This was definitely not an austerity budget, as the minister said.”

Rossouw also welcomed the primary surplus.

‘What was absent was the biggest and best news’

Doelie Lessing, director and tax specialist at Werksmans Attorneys, said what was absent from the budget was the best and biggest news: no tax rate increases and no new taxes introduced.

“However, there was bad news for venture capitalists, as the sunset date of 30 June 2021 for venture capital tax benefits will not be extended.”

She thinks that prospects of reduced corporate and individual tax rates in future years are interesting and promising.

Referring to promises of further changes in clamping down on plans to transfer growth assets to trusts, Lessing said it would be interesting to see, because so many rules are in place already.

Strong revenues

Dr Elna Moolman, head of macroeconomic, fixed income and currency research at Standard Bank SA, said as expected, revenues are stronger than the government’s previous (MTBPS) forecasts. “This meant that no tax hikes were required, despite the increased spending on grants, vaccines and the presidential employment programme.”

She was glad the Treasury also strongly signaled that it would avoid future tax hikes as far as possible.

ALSO READ: Budget 2021: Here’s how social grants will change

“The one exception is a potential future wealth tax, on which more research is being done. The focus continues to be on correcting spending misallocations, including inefficient spending, as well as overspending on some items.”

Moolman was not happy with further injections for state-owned entities (SOEs) because it would most likely continue to be a drain on the fiscus.

“The economy is clearly still weak, but the tax revenue data shows it is not quite as weak as many analysts feared was possible. There is still elevated execution risk, but by and large the fiscal forecasts are feasible and will likely be positively received by financial markets.”

‘Kudos for the minister for digging in his heels’

Ettienne le Roux, chief economist of RMB, was also impressed with the budget. “Kudos to the finance minister for digging in his heels. Instead of buckling under constant pressure to spend more, he remains steadfast in pursuit of fiscal discipline.”

He pointed out that spending restraint remains a more effective tool than tax hikes to help achieve debt stabilisation.

“In this respect, withdrawing last year’s proposal to raise an additional R40 billion over the medium term through tax measures is welcome news.”

ALSO READ: Budget 2021: Mboweni sets aside R9 billion for vaccines

Le Roux also found staying the course with regards to wage bill restraint commendable.

“Growing the bill at 2% to 3% below projected inflation will take some doing, but it is a crucial part of what is necessary to turn the country’s debt trajectory around.

“Setting a new trend of growing capex at faster rates than current spending is the correct one. It is a more durable way to help reduce the country’s risk profile while simultaneously contributing to faster economic growth.”

Over the long haul a blended approach of spending restraint, coupled with growth-boosting reforms, remains South Africa’s best shot out of the fiscal quandary it finds itself in.

“Still, there is no room for slippage either way. A breach in compensation ceilings or GDP growth undershooting ambitious targets would quickly upset the apple cart.”

He said notwithstanding a slightly improved debt trajectory, debt service costs will still absorb around 21c of every R1 of revenue collected.

This highlights the need for a long-term approach to sustainably lift revenue through growing the tax base, which, in turn, will not be possible without the successful implementation of growth-boosting reforms involving government, business and labour all pulling in the same direction, he said.

‘Government: put your money where your mouth is’

Dr Lumkile Modi, from the Wits School of Economics and Business Science, said the budget speech went extremely well, but now it will be time for the government to put its money where its mouth is. He was also excited to see the government’s infrastructure programme was not a pipe dream any more.

“In the past, government roll-out of infrastructure was fraught with corruption, but when private companies get involved, they will be watching the money. Cutting corporate tax is also fantastic for infrastructure development involving both the private sector and government.”

However, he is worried about the fact there is no agreement with the public sector.

ALSO READ: Budget 2021: Government slashes spending by a whopping R300 billion

“This is pie in the sky. I would also not treat all public sector workers the same and I think more should be done for health workers and teachers where we need it.”

Modi is also worried about the confusion on the energy side, as many promises have been made about involving the private sector, but the minister never signs anything.

He does not think the increase in sin taxes would decrease consumption and is happy the government will make some money from it.

However, the proof of the pudding is in the eating and Modi says it is to be seen if the government will be able to keep its salary bill low and if the ministers of energy and water will deliver on promises.

‘Grateful for an uneventful budget’

“As expected, on the tax front, we are grateful for a very uneventful budget. The government agreed that tax increases must be kept to a minimum. The personal income tax brackets will be increased by 5%, 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,” says Elizabeth Fick, joint head of Investec Tax and Fiduciary.

ALSO READ: Budget 2021: Government settles R267m demand for SAA guaranteed letters of credit

“The government is going ‘to think’ about further deceases to corporate rates, whatever this may mean.

“Our extremely high corporate rates are a big deterrent to foreign investment and this is clearly part of the government’s incentives to stimulate economic growth while tackling the expenditure side of the budget. This is done alongside recent exchange control relaxations.”

She pointed out that despite rumors of a wealth tax, it was not introduced as she expected. However, the government would continue to assess the feasibility of a wealth tax.

For more news your way, download The Citizen’s app for iOS and Android.