Finance Minister Tito Mboweni on February 26, delivered some welcome news with income tax relief and the feared VAT increase not materialising. Success now depends on implementing the difficult cuts.
Budget framework
* low growth led to a R63.3 billion downward revision to estimates of tax revenue in 2019/20 relative to the 2019 budget. Debt is not projected to stabilise over the medium term, and debt-service costs now absorb 15.2% of main budget revenue.
* the budget proposes total reduction of R261 billion over the next three years, which includes R160.2 billion reduction to the wage bill of national and provincial departments and national public entities.
* re-allocations and addition total R111.1 billion over the medium term, of which R60 billion is set aside for Eskom and South African Airways (SAA). These measures narrow the consolidated deficit from 6.8% of GDP in 2020/21 to 5.7% in 2022/23, with debt rising to 71.6 of GDP over the same period.
* minister Mboweni confirmed that municipalities would soon be able to purchase electricity directly from Independent Power Producers (IPP), thereby circumventing Eskom’s problematic power supply monopoly.
He added that “municipalities must be strengthened”. To this end, R426 billion will be allocated from the Medium-Term Expenditure Framework.
“The OR Tambo aerotropolis in Ekurhuleni is at an advanced stage of implementation and King Shaka airport in eThekwini is progressing in that direction. Cape Town shall join them soon. Meanwhile, Lanseria has been identified as a potential smart city,” minister Mboweni said.
* along with faster economic growth, fiscal sustainability will require targeted reduction of specific programmes, and firm decisions to rein in extra-budgetary pressures, including reform of state-owned companies and the Road Accident Fund (RAF).
* education and health will also be treated as a priority and to that effect, government will increase spending on schools and health care. In context, the government will be spending virtually the same amount on servicing debts as it will on health care spending, and will spend R10 billion less on peace and security than it will on debt service costs.
“The largest spending areas will be learning and culture, which receives R396 billion, followed by health with R230 billion, and social development with R310 billion,” minister Mboweni said.
In a statement Dr Heinrich Volmink (OUTA executive director for policy) said the organisation is pleased that minister Mboweni has recognised the concern that the country’s growth forecasts are significantly lower than its global peers and well below the global economic growth average.
“However, the growing deficit which is now at 6.8% of GDP and the reduction in the number of taxpayers from 7.6 million last year to 7.2 million, will impact negatively on public services,” he added.
* furthermore, R217 billion will go towards peace and security: SAPS will be granted R106 billion, while the remaining funds will be allocated between defence and state security, as well as law courts, prison and home affairs.
While the Budget Speech may have underwhelmed some, the SAA board is smiling widely as it will receive a much-needed government bailout to the value of R16.4 billion.
Alf Lees, DA member of the standing committee on public accounts (SCOPA), added that the SAA bailout was “shameful” when compared to the meagre 5% increase allocated to child grants.
Concerningly, debt-service costs remain one of the largest cost items in the budget with the government allocating R227 billion to servicing debt.
* Nothing was said about e-tolls, only that clarity on government’s position on the user-pay principle as it relates to e-tolls is still expected.
“We are still waiting for the cabinet’s decision on the future of e-tolls, but the Budget indicates an acknowledgement that motorists aren’t going to pay,” Dr Volmink said.
For the past few years, Treasury has allocated R1.8 billion to R1.9 billion to the GFIP tariff shortfalls, which is equal to the GFIP bond repayment value.
“In effect, the government has come around to OUTA’s position on funding the GFIP from Treasury and its appetite to enforce e-tolls is waning, suggesting a final decision to pull the plug is not far off. The question is why this is delayed?” Dr Volmink concluded.
* sin tax: increase excise duties on alcohol and tobacco by between 4.4 and 7.5%. Also, government will introduce a new excise duty on heated tobacco products, to be taxed at a rate of 75 per cent of the cigarette excise rate with immediate effect.
* medical aid tax credits: after a freeze last year, tax credits will increase from R310 to R319 per month for the first two beneficiaries and from R209 to R215 per month for remaining beneficiaries.
* fuel levies: Increases of 25 cents per litre to the fuel levy, which consists of a 16 cents per litre increase in the general fuel levy and a 9 cents per litre increase in the RAF levy.
* expat tax: government will increase the cap on the exemption of foreign remuneration earned by South African tax residents to R1.25 million per year from 1 March 2020.
In conclusion, minister Mboweni painted a subdued picture of South Africa’s economic position, with low economic growth serving as a baseline for the massive interventions he wants to bring to life over the next three years.
