Expectations from the budget speech

The past five annual budgets were structured around getting South Africa out of the fiscal hole it is in - and keeping true to tradition, the trend is expected to be continued as South Africans from all walks of life groan for a fiscal consolidation.

Looking at the general ambience of the market, the economy has deteriorated since the mini-budget speech in October and the poor performance has leaped from the last quarter of last year into the new year.

The budget for 2020/21 is South Africa’s last chance of avoid a ratings downgrade by Moody’s to ‘Junk status’ and with all eyes on finance minister, Tito Mboweni, the market has a lot of expectations from budget spread.

Confidence from high up

With the rating agencies keeping a close watch on proceedings, President Cyril Ramaphosa has come out with a statement of confidence in this year’s budget during his address at the Raymond Mhlaba centenary lecture in Vryheid, KwaZulu-Natal, saying the budget will “be robust”.

It seems as if the downgrade by Moody’s, which is the only major rating agency that still has the country's sovereign debt at investment grade, could be avoided after all, however it will go down to the wire - a photo-finish, if you will.

Between a rock and a hard place

South Africa is going through serious economic discomforts, including a record unemployment rate where essentially one in every three people is unemployed, energy insecurity with a financially burdened Eskom and a free-falling economy that’s spiraling into the precipice of junk status among other considerations. Money needs to be pumped into the coffers of the state and it needs to happen fast.

Rudimentarily - the state is spending more than it’s getting in, so the state is burdened with getting more cash into the collective purse and since we import even the most basic of commodities like food – it’s either the tax citizen who will have to pump the money in or we’ll have to see a rapid growth in revenue from other sources. The minister will have notes at the podium, and not a magic wand.

Observers say we are most likely going to see an increase in Value Added Tax (VAT) from 15 percent to 16 percent with another related school of thought saying we are most likely going to be introduced to new taxes to fill up the purse.

Consumer to feel the pinch

The brunt will be felt by the consumer, and it is a prospect that is unavoidable.

Liberty Consumer Economist, Tendani Mantshimuli said “consumers will continue to bear the burden of increases in costs whether through their personal income or taxes imposed on products consumed, adding to an already existing feeling of financial strain and helplessness. What consumers will really want to know is if they’ll pay more income tax, if pension funds are affected or if their daily expenses are being impacted adversely, whether due to unexpected levies or income tax brackets creeping on their lifestyle costs.”

“Despite efforts of raising our country’s income through tax and other lucrative avenues, the issue of our accumulated debt as a country, remains. Our “gross national debt” exceeded R3-trillion 2018/2019 and was reportedly expected to rise, which means we’d have half as much debt as we have GDP value as a country,” continued Mantshimuli.

Need for creative thinking

Assumptions that new taxes could be introduced are based on the sheer need to find new ways of increasing revenue for the state and they are based on current affairs, as well as actions of the key role players. The possible new laws may impose an introduction of tax on religious institutions with tax-exempt status and the cannabis market that’s worth billions.

South African Revenue Services (SARS) had already warned of investigations into churches with tax exemption status that are run like businesses and leaders who use church assets for their own benefit. Churches must be registered as Public-Benefit Organisations (PBO) with the SARS’ tax exemption unit in order to obtain a tax exemption status, however, PBOs paying excessive amounts to their employees can lose their tax-exempt status.

If the finance minister’s recent tweets are anything to go by, taxing churches is something he holds close to his heart. He fired a salvo on social media and tweeted “If these so-called ‘independent churches’ operate as businesses, then they must pay tax. The funny ones (sic) must be closed down, period. We are a law-governed country. This thing of taking advantage of our people must stop.”

“Any ideas about how to impose taxation on these mushrooming handy clappy, snake eating “Churches”. (sic) The time to tax them is now!!(sic)” he also wrote, to the annoyance of the Congress of South African Trade Unions (COSATU). The labour federation publicity aimed at Mboweni for tweeting these words and took a stab at him for not raising them at an “appropriate” platform.

Adding to these possible taxes – a new “expat tax” will be effective from March 2020. South African tax residents plying their trade overseas be taxed on all their foreign income exceeding R1 million a year.

In a nutshell

The purpose of the budget speech is to offer solutions and there are also positives expected from it.

Mantshimuli said “The budget speech will be a representation of our country’s value, its plans to improve that value and present information to equip South Africans to play an active part in society to ensure our annual financial goals are achieved.”

Concluding “While we cannot control the budget speech and allocated spend for 2020, we can manage our pockets and plan better for financial freedom and inclusivity.”

Writer’s Thoughts:
South Africa needs a collective effort from all stakeholders to turn around the economic fortunes, however for apropos leaders in government, today’s budget speech presents an opportunity to show South Africa why it elected them - an opportunity to show responsible and competent leadership. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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