Budget Speech Review.
With global concerns over a virus that sent markets into a frenzy earlier in the week, an ailing economy, a huge public wage bill, failing state owned entities (SOEs), high unemployment rate, volatile and undervalued currency and being situated within emerging markets, South Africa finds itself in a precarious positions.
The task to deliver a substantial and decisive budget speech for the Minister of Finance was a bit of a mammoth ordeal. However he stood resolute in delivering a speech that could potentially change the trajectory of our economy.
The ministry expects the inflation rate to remain at 4,5% percent in the year 2020, however the economic growth will remain rather stagnant at a measly 0.9% in 2020 and just over 1% in 2021 and 2022.
To provide the economy with the much needed growth, plans include; lower inflation, interest reductions, reforms set by the president, and new tax proposals to assist the tax payer in having a bit more disposable income.
Spending focus will largely be on the following areas: education, health and social development, modernising and restructuring SOEs, curbing corruption, lowering the cost of doing business, (possible decrease in corporate companies tax in the future), focusing on industries that can deliver employment creation opportunities.
For 2020/21, revenue is projected to be R1.58 trillion, or 29.2 per cent of GDP. Expenditure is projected at R1.95 trillion, or 36 per cent of GDP.
This means a consolidated budget deficit of R370.5 billion, or 6.8 per cent of GDP in 2020/21. Gross national debt is projected to be R3.56 trillion, or 65.6 per cent of GDP by the end of 2020/21.
Many economic analysts predicted an increase in taxes; VAT and personal income tax hikes were expected, however the Ministry did the contrary, providing some much needed relief to economic participants who are feeling the pinch. Tax reduction for low income earners decreasing by as much as 10% and for higher income earners decreasing by as much 1.5%.
To aid business growth there will be preferential small business tax regimes, the VAT registration threshold and the turnover tax. To keep the trend of individuals purchasing property, the threshold for transfer duties has been adjusted therefore properties under R1 million in value will not attract transfer duties.
Quite big announcement one that SimWealth advocates for, was the annual contribution rate towards Tax Free Savings Investments has been increased by R3 000,00 to R36 000,00. Hopefully in the near future they will also increase the lifetime contribution.
The fuel levy is set to increase by 25cents, 16 cents being allocated to the fuel levy and the 9 cents to the road accident fund. There is also a 25 cent levy increase on plastic bags, this is largely due to the concern of creating a green economy.
An increase in excise duties to keep pace with inflation were as follows:
- A 340ml can of beer or cider will cost only an extra 8c
- A 750ml bottle of wine will cost an extra 14c
- A 750ml bottle of sparkling wine an extra 61c
- A bottle of 750 ml spirits, including whisky, gin or vodka, will rise by R2.89 A packet of 20 cigarettes will be an extra 74c
- A 25 gram of piped tobacco will cost 40c more A 23 gram cigar will cost an extra R6.73.
Learning, Health and Social Development.
Heavy spending has been allocated to these areas because they are areas that be multiplier in producing the necessary economic growth required. Learning and culture is set to receive R396 billion which will be allocated to building of schools, rebuilding schools and introducing coding and robotics in our basic education curriculum, social development R310 billion and health receiving R210 billion.
A huge concern for many has been dealing with the current high rate of unemployment, which sits at 29% the jobs fund project and Youth Employment Scheme (YES) set to address this concern.
Social grants were adjusted in the following manner:
- R80 increase for the old age, disability and care dependency grants to R1860 per month.
- R80 increase in the war veterans grant to R1880.
- R40 increase for the foster care grant to R1040 per month.
- The child support grant will increase by R20 to R445 per month.
Modernising Network Industries and Restructuring SOEs
Eskom and SAA
An amount of R230 billion has been allocated to Eskom over the next ten years to achieve the restructuring of the electricity sector, this includes introducing new sources of energy to curb the current electricity shortfall, which in turn will ease pressure on Eskom to complete the critical maintenance required.
SAA has been placed under business rescue which will lead to a radically restructured airline. Over the medium term, Government has allocated R16.4 billion to settle guaranteed debt and interest. The associated restructuring costs will be reprioritised within the Budget.
Reimaging the Industrial Strategy
- An Innovation Fund will be capitalised with R1.2 billion over the next three years
- Industrial business incentives worth R18.5 billion will create and retain approximately 56 500 jobs
- An additional R107 million is reprioritised for the refurbishment of 27 industrial parks in townships and rural economies
- R6.5 billion is allocated for small business incentive programmes of which R2.2 billion will be transferred to the Small Enterprise Development Agency
With all things considered the speech was well delivered and also well received as there are plenty of positives to take away from the 2020 budget, particularly how the government’s plans on supporting small business to help grow the economy and address the unemployment concerns by lowering costs of doing business and introducing attractive tax regimes.
The tax adjustments for individuals was also great news as this will increase disposable income, and the introduction of new taxes on products whilst increasing excise taxes to address the shortfall in generating tax revenue was a pleasing balance.
Our national debt to GDP ratio is still of great concern and is expected to increase in 2020, government needs to curb this extensively, especially if they want to avoid a down grade by the rating agencies.