What the budget didn’t say

For one thing, how will taxes be increased?
And is the estimated R1.5bn being lost each month in sin taxes not seen as a problem? Image: Shutterstock

The emergency or ‘special adjustment’ budget tabled by Finance Minister Tito Mboweni on June 24 centred on the potentially disastrous trajectory of South Africa’s fiscal affairs.

It can easily be summarised in two charts and an extract from the foreword of the Supplementary Budget Review Document:

“For several years, the National Treasury has been warning that an absence of fiscal space would leave South Africa vulnerable to external shocks. That risk is now a reality … South Africa has begun heading into a debt spiral.”

Source: National Treasury

The above reflect how South Africa will be caught in a debt trap if government does not actively put measures in place to decrease government expenditure and increase economic activity.

If government is to continue on the current trajectory, debt-to-GDP could reach 140%. With spiralling debt, the debt service cost will increase exponentially, eventually resulting in South Africa defaulting on its debt.

The focus should however not be on what was said in the budget speech, but rather on what was left unsaid.

Increase taxes

Mboweni alluded to tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25, but with no mention of how this will be achieved.

The fact that no tax policy announcements were made indicates that Treasury requires more time to contemplate these changes. Interestingly, the R5 billion figure could easily be achieved by bracket creep alone. Taxpayers have to wait until next year to see exactly how Treasury expects to collect additional tax revenue.

There has been a great deal of speculation in the media on the introduction of a so-called wealth tax, but the feasibility of a wealth tax in South Africa would need to be investigated.


The viability of a wealth tax depends on the amount of tax that would be collected versus the cost of its administration. Critics of a wealth tax argue that it would be too costly and complex to implement. It seems Treasury agrees.


No mention was made of the National Health Insurance (NHI) and its introduction. The cost of putting this in place in the current economic environment makes it untenable.

Read: NHI benefits and implementation remain undiagnosed

Treasury seems to have placed NHI on the back-burner until South Africa has weathered the Covid-19 storm and is able to demonstrate consistent and reliable growth.

Illicit economy

The loss of tax revenue due to the tobacco and alcohol ban has been immense.

Many commentators are calculating R1.5 billion per month lost in sin tax collection alone.

On the other hand, the illicit economy has flourished. In the February Budget Speech, Mboweni stated that the South African Revenue Service (Sars) would “renew its focus on illicit and criminal activity”. However, it could be argued that the lockdown has strengthened the illicit economy, with Sars powerless to intervene.

Treasury needs to focus on the tax revenue already lost as well as the revenue that will keep being lost if the illicit economy continues to grow.

The upside

Fortunately, this latest budget was not all doom and gloom. Treasury acknowledged economic reform focused on the underlying structure of the economy.

Primarily, it aims to reduce the cost of doing business, taking steps to improve the competitiveness of the economy by reducing the dominance of state-owned companies in network industries, and supporting new and existing sectors with large-scale job creation potential.

Tertius Troost is tax manager at Mazars.


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Here is the logic.

They have a loan guarantee scheme and businesses like restaurants are encouraged to get a loan to keep paying their people and debt. So you must make more debt yet you have NO IDEA how you will pay it back. How can you have any idea when you have no knowledge of when you might be allowed to open again and under what rules?

This lot is the same. Make debt without the slightest idea of how you will repay it.

A career politician who wants to further his career is forced to think short-term. Populism forces politicians to become myopic. Ignorant voters with their self-interests incentivise the career politician to steal funds from the future to fund social projects today. In this way, future capital investment is used to fund consumption today. The people actually eat their future.

This process is much more potent in societies that do not conceptualise the “future”. Societies who live in the past, honour the past and blame their current situation on the past, tend to ignore the future. If they remain focussed on the past, then they can blame something or someone else. If they shift their focus to the future, then they have to be accountable and act responsibly. It is much less painful and much easier to ignore the future and to keep on blaming your present situation on something that happened in the past.

This is why it is so easy for collectivist cultures to eat their own future. One man’s debt is another man’s asset. When a nation borrows from the future, they have to pay interest on that loan. The lender earns interest. The borrower transfers his future to the lender. The lender is a pension fund in Europe and the borrower is a socialist government in Africa. This transaction actually removes the future from the African people and give the future to the European pensioner. This is why socialism does not have a future.

I honestly come to the comments section almost purely to look for your commentary, Sensei. It’s Warren Buffett-ish in its poignancy and perspective, and yet never highfalutin.

I have to ask: Are you still based in/wedded to SA, or have you been able to get out?

Gareth C, I appreciate your kind words. I come to Moneyweb to interact with like-minded individuals. We are disillusioned patriots, all of us. We find it frustrating that our best intentions are trampled upon and our contributions are squandered, but that is the nature of the beast.

People like us, the readers of Moneyweb, can survive and even thrive in countries like Venezuela, Bolivia, Argentina and Zimbabwe that go through economic turmoil and social upheaval, if they manage to live in “enclaves”. South African society has been engineered in that way. Many communities are relatively isolated and secured. I am in the process of externalising my assets, but I do not intend to emigrate at this stage. South Africa can be the land of milk and honey, as long as your cow and bee-hive are domiciled in countries that respect property rights.

The current government will make life a lot cheaper for individuals whose assets are denominated in euro or dollars. As the ANC implements their failed strategies, they will shift wealth and purchasing power from local workers to those who earn dollars or euros. The ANC will ensure that the wage of the domestic worker, the gardener, miner and farmworker will be decimated in real terms to the point where a months salary is equal to R5.00 in current purchasing power. Those whose assets are offshore will be able to employ local labour at the equivalent of R5 per month. The cost of living will go down for the wealthier part of society but will explode upward for the poor.

The ANC will subsidise the wealthier part of society by destroying the purchasing power of the currency. This is a massive shift of wealth from the poor to the wealthy. This is the divine justice for the populism and ignorance of the average voter.

I created a Moneyweb account just to say that I agree with Gareth C’s comment! Always look forward to your commentary Sensei.

agree with Gareth Sensei: I have printed out your response below as it expresses precisely the way i see things : One just has to have the guts to get on with it: The only concern is Income generation from offshore funds where returns are so low, but RSA is goig the same way : Appreciate your input of wise Teacher (Sensei).

edalsg, thank you. I am not too sceptical about JSE-listed opportunities. The best international opportunities, like the NASDAQ ETF and the gold ETF, are listed on the JSE. Performance-wise there won’t be much of a difference between buying a Nasdaq ETF in the USA, or locally. Both will reflect the movement of the underlying in dollar terms. There is a small difference in tax liability between the profits in rands on the JSE, versus the profits in dollar terms in the USA. The local tax resident will be taxed on his international income.

The best-performing stock exchange in the world was the Zimbabwean exchange during hyperinflation. The Argentinian bourse has been delivering 40% Compound Anual Growth over the past 5 years or so, during the debasement of the peso. The JSE will offer some degree of protection against hyperinflation, but the local will be taxed on those gains. The local investor will pay capital gains tax on currency debasement if this risk does materialise.

We are heading for trouble unless we see clear signs of a turnaround. The privatisation of SOEs, a freeze of the public wage bill, the easing of labour laws, a boom in green energy generation and the privatisation of municipal services will signal a positive turn in economic expectations. At this stage, we are still heading for the cliff.

All of the best to you.

Sensei, all I can add to that is how the European pensioner will be blamed for the result…

Hello Sensei, I am not a regular reader of the comments section, as most of it is really not worth the trouble. I stumbled upon your posts while sitting in Canada contemplating whether I should make the move permanent or not. Your posts make so much sense and point the way for me. That aside, I am also making sure I externalise what funds I have from SA. As an ex Zimbabwian the current ZA trajectory looks uncannily similar. Do you have a website or FB page where one can follow your wisdom.

So let me get this right. With no ban on alcohol or cigarettes, at R1.5 milliard per month loss in tax revenue, we could have collected R18 milliard in this income tax year alone, from these excise duties, making the increase in taxes for 2021/2022 tax year (R5 milliard) and 2022/2023 tax year (R10 milliard), completely obsolete, with some R3 milliard to spare?

Prediction Engine on increased taxes:

Many in SA are asset rich but income poor. There are tens of billions of lifestyle assets sitting dormant in family trusts and family companies. Think of all the Ballito, North Coast, Plett, Clifton homes and all the game farms and wine farms. Those owners are captive and relatively easily identifiable.

1. Increase the capital gains inclusion rate from 40% to 60% for individuals and from 80% to 100% in companies for actual disposals.
2. Include use of trust assets in the pool of deemed fringe benefit. If an exec uses the company beach house, he is taxed on that value. If a trust beneficiary lives in an apartment owned by the trust, he should be taxed on the market value of that usage no different than free use of a company car.
3. Government can introduce a 0.1% national property tax that would apply in addition to the municipal rates. So a R40m clifton apartment pays R400k per year to City of Cape Town and R40k per year to SARS. That rate can be 0.5% for owners that are not resident taxoayers.

Maybe you missed the Milton Friedman comment on 100% tax but maybe you know better than he does. Good luck.

You seem to confuse what I predict or want they will do vs to what they should do!

“Many in SA are asset rich but income poor..”

The rest of your comment mediocre senseless waffle

Respectfully it makes perfect sense. You have a house which is theoretically worth R2m. Your outstanding bond is R500k. Your net asset value is R1.5m. Except you can’t get at the R1.5m easily, without selling your house but then you have no place to live. So you have assets but no liquidity to spend.

Johan, Buys…… tut tut. Tut.
Clearly you are living in dreamland.
Try working out the taxes and employment opportunities created by the Clifton Investors, Wine Farm Owners and so on….
Try doing similar and then elaborate..

In a money web article:
“The budget surprised the market positively relative to its rather dire expectations,” RMB analyst Nema Ramkhelawan-Bhana said in a note.

On Money web:
Mike Schussler 8/10
Cas Coovadia 8/10
Ettiene Retief 7/10
Nazmeera Moola 9/10
Ryk can Niekerk 5/10

Really? 9/10????? REALLY???
I do NOT think there was anything positive.
I dont think you lot know what you talking about. You GAS LIGHT your findings for a particular group and show things are positive.

THe MINISTAR left out all the details? Show me the details before you say its positive or 9/10. The minister has no clue as to how to obtain the shortfall. Yes, IMF… its all smoke and mirrors. No mention on how he is going to curb spending. Do you see spending as positive or 9/10?????

There is only one elephant in the room and that is the tax payer.
the taxpayer will suffer the most…. How is that positive?
This is an inter generational problem…. the future citizens and tax payers will pay dearly for this mess. How is that positive for the future?

Couldent agree More Dragon X : Tito,s said nothing other than that the economy is St–Fed : How this got these positive responses is beyond me , as is the fact that the Rand keeps Strengthening ?? Are others countries worse ff than us : Thats not possible (excl Zimbabwe ):

Even the article hardly says anything. Truth is even saying nothing really as Mboweni did is seen as a positive in SA. I would like to see Chris Hart or Magnus Heystek’s scores.

But remember most of these “analysts” have to be careful and be seen to be supportive of the government.

The time for thinking “oh it will get better is over”

The collapse is coming and get our money out NOW! You have been warned!

You have to love economists – they are a bit like the dog that keeps chasing the passing cars and never achieving their objective.
You have to wonder 1) why they keep chasing the cars: 2) what happens when they ultimately do catch the car – there another surprise waiting to happen

The answer to that one is quite simple. The dog barks and chases the car, the car runs away, the dog wins. With an economist, they bark and predict the future, but are never taken to task when the future arrives and they have to live up to their predictions.

So the dog actually always achieves its objective, and I think economists probably do too.

I think we are firmly in the trap already.

End of comments.




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