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Budget 2021 - Commentary from Momentum Investments

25 February 2021 Johann van Tonder, Economist at Momentum and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments
Johann van Tonder, Economist at Momentum

Johann van Tonder, Economist at Momentum

Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments

Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments


• The national treasury’s expected economic growth rate of 3,3% for 2021 is realistic and in accordance with our expectation of 3,2%.
• A consolidated budget revenue overrun of almost R100 billion compared to the Medium Term Budget Policy Statement (MTBPS) for 2020/21 assisted to reduce the budget deficit to 14% of gross domestic product (GDP) compared to the estimate of the MTBPS of 15,7%.This had a knock-on effect, reducing the expected deficit over the forecast period up to 2023/24.
• If treasury’s forecasts prove to be correct and government can stick to treasury’s plans, it will reduce the government’s debt burden significantly. The MTBPS estimate was for gross debt to GDP to reach a peak at 95,3% in 2025/26. The new estimate is 88,9% in 2025/26.
• Enough money was set aside to vaccinate 67% of the population against COVID-19 in the next 12 months. Some R19,3 billion is available for vaccination in 2020, 2021 and 2022.
• Household consumption expenditure will gain from personal income tax bracket creep relief. However, personal savings could be affected negatively as the allowable annual deduction on contributions to retirement funds was reduced from R350 000 to R300 000.
• A one percentage point reduction in the corporate tax rate (to 27%) from 1 April 2022 should provide some reprieve to company profits.
• A contractionary budget amid fiscal consolidation favours fixed income assets over SA Inc equities. Another positive for the government debt market is the R128,6 billion reduction in the borrowing requirement and hence debt issuance in the medium term, partly also by using the higher accumulated cash balances (due to the revenue overruns relative to the October MTBPS expectations for this).

To download the Budget 2021 note in PDF, click here...

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Covid-19 may accelerate certain industry trends. What are we likely to see?


Adoption of contactless technologies and digital experiences will likely be accelerating emerging technologies further
The consumer will expect safety and precautionary measures, driving the need for enhanced surveillance policies and technologies, which may pose potential privacy concerns
Rising activism among consumers and employees could drive an increased focus on corporate purpose
Value chain disruption is likely to lead to an increase in creative partnerships, which may in turn cause organisations to further invest in developing the mindset and agility to collaborate across sectors in the ecosystem
Cost management will be a critical priority to ensure business continuity based on cash flow requirements, to manage lower margins and revenues during a downturn
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