Now that the dust has started to settle on Minister Mboweni’s Budget, we can safely say it was an extraordinary mixed bag.
The macro- economic view is nothing short of shocking but we knew that already. Key figures such as the budget deficit having risen to 6% of GDP and likely to rise further next year; the country’s debt likely to rise to 70% of GDP with growth projections for this year and next unlikely to exceed 1% and with Coronavirus a good deal less than that. Tax revenue is likely to show a shortfall of some R63 billion in the current year
In an attempt to deal with the dire state of the country’s finances, exacerbated by the financial predicament state owned enterprises find themselves in, Minister Mboweni announced that there would be a curb on public sector salaries which would expect to save some R160 billion.
Whilst we think cutting costs in the public sector is laudable, we realise this is not going to be easy. Firstly, the government is going to have to re-negotiate the 2018 wage agreement with the unions with the latter already not taking kindly to the proposal. A major issue is that those employed in the public sector are not only highly paid officials in the upper echelons of government at local, provincial and national level but lowly paid teachers, nurses, policemen and firefighters say. It is difficult not to have sympathy with the latter group of public sector workers – the lower paid ones – over those who are probably over paid for what they actually do.
Aside from the concerning macro situation, individual tax- payers were greatly relieved that the much- expected hike in VAT, the introduction of higher tax rates and even a special wealth tax did not materialise. Indeed, Minister Mboweni found room for some tax relief, by way of an adjustment to the tax table brackets, affording all tax- payers some relief to help cope with inflation. Medical tax credits were increased and the annual amount which a person can invest in tax free savings rose from R33 000 to R36 000 per annum. Also announced was an increase to the exemption for income earned abroad to R1.25m per annum. Regarding the latter, the new law governing income earned abroad by deemed SA residents came into effect on 1 March. For a broader commentary on this please read Allan Gray’s Carla Roussouw here.
Clearly there has been a realisation that the average tax payer in South Africa cannot be squeezed much further. Long may that view prevail.
Despite this unexpected good news for individual taxpayers – with the prospect that the corporate tax rate was being reviewed too – there are still some clouds developing on the horizon. No mention was made about how NHI is to be funded – more specifically who is going to pay for it. Many observers think the scheme is unaffordable but despite this, comments since the budget by Health Minister Mkhize as well as the President himself, indicate that the government is pressing ahead with the scheme regardless. Equally concerning in our view is the issue of prescribed assets as regards pension funds, particularly the baling- out of Eskom using funds managed by the PIC. If pension funds are to be required to invest a certain amount in entities such as Eskom then they must be assured of a reasonable return on such investments, otherwise fund trustees are clearly failing in their fiduciary responsibilities.
- 6 Mar, 2020