‘Hopeful Budget’ but tax clarity and economic reforms are needed

Allan Gray managers share their expectations and hopes for the impending #Budget2022.
Finance Minister Enoch Godongwana delivering his mid-term budget to parliament on November 11, 2021. Image: GCIS

This year’s budget speech, set to be delivered on February 23 by Finance Minister Enoch Godongwana, is likely to strike an optimistic chord thanks to a number of recent tailwinds responsible for positive economic uptick. However, questions remain on how government will respond regarding taxes for individuals and corporates.

Read: Moneyweb’s #Budget2022 coverage

This is the view of Thalia Petousis, fund manager, and Komil Gordhan, tax manager at Allan Gray.

Windfalls for the country’s coffers 

“Despite the economy facing serious problems like stagnation with low growth and high unemployment, there has been strong revenue collection, particularly owing to robust corporate income tax collection in December, which may reduce the 2022 budget deficit by approximately R80 billion from previous projections, to closer to R300 billion, which is about 5% of GDP,” explains Petousis.  

Gordhan says that these positive developments overshoot the Medium-Term Budget Policy predictions from 2021, which provide Minister Enoch Godongwana with a little breathing room.

Watch/read: The MTBPS you can’t afford to miss

“The South African economic recovery has been quicker than expected, with output expected to return to pre-pandemic levels by 2022. This is a year earlier than expected previously,” says Gordhan.

For Petousis, the one caveat to this statement is that the faster pace is chiefly due to price increases in key commodities, like platinum, that South African miners export, as opposed to greater efficiency at SA ports, rails, and in local electricity generation – which is what is sorely needed to achieve stable economic growth. The economic recovery is also highly uneven, with the tourism and leisure industry, as well as the household and consumer, in a very feeble state.

That said, the continued reforms that President Cyril Ramaphosa announced at the State of the Nation (Sona) around the liberalisation of the electricity industry and private sector partnerships in catalytic rail projects are positive if they are to be executed properly and with some haste.

“For now, strong commodity prices should continue to lead to revenue overruns sufficient to fund the additional expenditure that government will spend on an extension of the social relief distress grants,” Petousis notes.

She adds that this year has also kicked off with some sizeable inflows from foreigners into the local bond market.

“This is bullish for SA bonds in the short-to-medium term and implies that there might be scope for National Treasury to reduce the size of their weekly bond and Treasury bill issuances,” says Petousis.

Gordhan says that given the recent positive economic developments, together with better-than-expected revenue collection, the finance minister may just have some good news for parliament and taxpayers this year. “However, challenges in reducing government debt remain ahead of us, due to notable difficulties in tackling public sector wages, Eskom’s weak operational and financial state, and low GDP growth potential.”

Managing the budget deficit, with or without tax rates? 

Gordhan says that it is unlikely that the large budget deficit will be solved by tax hikes.

“Godongwana noted in his medium-term budget in November 2021 that stabilising the debt burden is an essential target for fiscal sustainability. It was also acknowledged that tax increases over the recent past have had an adverse effect on economic growth rather than spending reductions. Therefore, any further tax increases are not desirable, regardless of the debt burden, as they will have a negative impact on the economic recovery reform.”

She says that neither corporates nor individuals are likely to carry the tax burden this year. “Instead, the focus is anticipated to be on broadening the tax base whilst lowering tax rates, a journey that is already underway – with the proposed reduction of the corporate income tax rate from 28% to 27% in 2021. This is being accompanied by expanding the application of interest deduction limitation rules and the limitation on the use of assessed losses to aid in widening the tax base for corporate taxpayers.”

She also says that raising taxes on individuals will have a negative impact on the economy, especially as taxpayers are in desperate need of tax relief to help cope with rising food and fuel costs, rising interest rates, and to cushion the blow from the Covid-19 pandemic.

“National Treasury has also recognised that both personal income tax as a percentage of GDP, as well as the country’s marginal tax rate, are higher than other comparable countries.”

The good news, Petousis says, is that while a deficit closer to R300 billion will still be a large amount for the domestic savings pool and local banks to fund, it is more manageable than that of the previous financial year.   

“We expect that the Budget will reflect the intention by government to revive the economy through providing continued tax relief, added focus on accelerating reforms in the country and no major tax increases as South Africans begin to emerge from the pandemic and its negative impact.

“We should not be despondent if a conservative approach, without tax breaks, achieves the aim of stimulating the country’s economic recovery,” concludes Gordhan.


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The scourge of high unemployment and low growth are symptoms of the same disease. These phenomena do not have a life of their own but result from economic policies rather. Therefore, in a modern economy, these issues are entirely manmade. They serve as a lagging indicator of the effect of the chosen political-economic system.

Government intervention in the free and unhampered cooperation between individuals, who act in their personal best interest, by delivering products and services as part of a mutually beneficial exchange, cause unemployment and poverty. Only a government can create it, and only a free market can cure it, in other words.

Politicians try to solve the problem of poverty by blaming the factors they identify as the cause of poverty. This is a dangerous misconception because poverty is the default, or natural state of humanity. Society reverts to a state of poverty whenever the factors that drive wealth creation are absent. Humanity has been living in a state of abject poverty for tens of thousands of years. During this time, the weather patterns determined the size of crops, that in turn, determined the size of the population. This is called the Malthusian Trap, and it describes how famine controlled the population size in communalist societies. Poverty was the norm everywhere.

The development of property rights helped societies to escape from the Malthusian Trap. With property rights came the rule of law and free trade. People are incentivized to work harder and smarter when they are allowed to keep ownership of the fruits of their labor. Property rights are the most efficient and fair allocator of scarce resources. No country in the world that respects property rights ever suffers famine. In the modern age, famine is a political issue and not a climate issue anymore.

Socialism presupposes an abundance of resources. There is no need for property rights to allocate resources when those resources are abundant. That is why First Nations had no use for property rights in the land because the land was abundant and the population size was small in comparison. Africans experienced a shortage of people to till the field and look after the cattle. Therefore, they developed property rights in people, and not in land.

Land, capital, expertise, and work ethic have a scarcity value, but the socialists force the owners to “share” it through taxation, labor laws, job quotas, and BEE charters. This is a proven recipe for unemployment and poverty as it sets the manmade Malthusian Trap once again. The lack of property rights demotivates savers, investors, and entrepreneurs from growing the economy and creating employment opportunities. The “sharing” of capital through taxation and BEE destroys capital formation that drives the productivity of labor. The capital that was consumed as a tax would have built a factory or a production line. That implies that taxes on capital makes even the minimum wage unaffordable.

This is how socialism consumes the future of a nation.


Accelerated tax depreciation like the s12 on solar gets booted. (solar does not need the incentive to pay its way anymore)

Medical rebates suffer significant real term reductions and changes to the extra credit calculation. (the rebates amounted to a subsidy of private healthcare, which is not PC)

Corporate Income tax does not get relief (it is not PC)

End of comments.




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Moneyweb is a financial, investment news provider and not a tax- or financial advice authority. Please contact Sars or a registered tax practitioner for any tax-related queries.


  CPIThe Consumer Price Index (CPI) measures monthly changes in prices for a range of consumer products Apr 2022 5.90%
  CPI ex OERThe Consumer Price Index excluding Owners’ Equivalent Rent (CPI ex OER) measures monthly changes in prices for a range of consumer products excluding Owners’ equivalent rent that measures changes in the cost of owner-occupied housing Apr 2022 6.40%
  RepoThe rate at which the Reserve Bank lends money to the country’s commercial banks and set by the Reserve Bank’s Monetary Policy Committee. May 2022 4.75%
  Prime lendingThe Prime Lending Rate is the rate of interest that commercial banks will charge their clients when issuing a loan (home loan or vehicle finance) May 2022 7.75%

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