The first budget of the Sixth Administration of South Africa was surprising to most as the scare of higher VAT and the increase on personal income tax expected by most economists was not introduced. Instead, Minister Tito Mboweni delighted most with news of tax relief in sectors of personal tax and more ways of saving from the government.
Major Talking Points:
- Revenue is projected at R1.58 trillion or 29.2% of GDP, while expenditure is projected at R1.95 trillion or 36% of GDP making up a consolidated deficit of R370.5 billion.
- The consolidated deficit will reduce from 6.8% of GDP in 2020/21 to 5.7% in 2022/23 but debt rises to 71.6% over the same term.
- Debt servicing costs now take up 15.2% of budget revenue.
- Proposed savings in the 2020 budget: R261 billion of which R160.2 billion will come from a reduction in the civil service wage bill which is still getting stern opposition from Cosatu.
- The reshuffling of funds totals R111.1 billion over the short term which will be used towards struggling state-owned entities.
- The proposed State Bank is underway, as well as the proposed Sovereign Wealth Fund which will be started with an initial contribution of $2 billion. The funds will come from various players in the natural resources industry.
- No substantial tax increases were announced as we look to grow the economy and support economic growth, those earning on average R265 000 a year will save over R1 500 a year in tax, those earning R10 000 a month will pay 10% less and those earning R100 000 a month will pay 1.5% less.
- Sin Taxes will increase for all levels of alcohol and tobacco between 4.4 and 7.5%.
- Fuel levy will be increased by 25 cents, 9 cents of which goes toward the Road Accident Fund (RAF).
- The annual contribution limit on tax-free savings accounts has been increased to R36 000 per tax year, an overall increase of R3 000 per tax year.
- Government has also relaxed the restriction on foreign remuneration earned by South African tax residents to R1.25 million.
- Social grants have increased, R80 increase for old age, disability and care dependency grants to R1 860 per month. R80 increase in the war veterans’ grants to R1 880, R40 increase for foster care grants to R1 040 per month and child support grants will increase by R20 to R445 per month.
- Consolidated expenditure will increase year on year as follows; R1.95 trillion in 2020/21, R2.04 trillion in 2021/22 and R2.14 trillion in 2022/23.
- Most of the spending will be done on the essentials as set by Minister Mboweni such as education and culture (R396 billion), health (R230 billion) and social development (R310 billion).
- Another important highlight which was brought up was wasteful expenditure. There will be changes in cellphone use policies and travel arrangements.
In closing, the minister of finance said: “Winning is not easy. Less than two years before winning the World Cup, the Springboks lost 57-nil to the All Blacks. Miss Universe did not win her first attempt at Miss South Africa. Winning takes patience, prudence and perseverance.”
Source: National Treasury