This week the Minister of Finance, Tito Mboweni, delivered his 2021/2022 budget, a particularly tough one, with huge pressure to strike the right balance between providing relief for many South Africans and at the same time, consolidate the country’s fiscal position as we continue to reel from the effects of the Covid-19 pandemic.
Providing evidence of fiscal discipline to the international rating agencies is important. With South Africa’s high debt ratio of some 88% to GDP any downgrades of the country’s credit rating by these agencies will have an adverse impact on our already high interest payments on our international debt.
Gustav Raubenheimer, Interim CEO of African Bank, says, “We appreciate the pressure that many South Africans and our customers are under and we therefore welcome the personal tax relief, particularly for middle to lower income earners. The news that South African tax payers will not be expected to fund the R10 billion allocation for the Covid-19 vaccine rollout plan as was initially envisaged last year, was also good news.”
The Minister noted that the South African growth outlook “remains highly uncertain” including possible new waves of Covid-19 infections. The public finances are still over stretched and SA’s borrowing requirement will remain over R500 billion per annum, with consequent interest payments on this debt.
Government total spending is expected to amount to R2 trillion per annum over the next three years, with the majority going towards social services, while revenue or earnings are expected to be R1.35 trillion
Raubenheimer says that although the budget may seem complex to many people, it is really just a large financial plan that applies to all South Africans. On a personal level, you should consider your own budget. National Treasury has granted some tax relief that may apply to you by increasing the personal income tax brackets for middle to lower income earners. It may be a good exercise to see if you can take that saving in tax and invest it wisely into a high interest earning savings product or a tax-free account.
Budget 2021 highlights which impact you:
- No personal or corporate tax or VAT hikes!
- To assist middle to lower income brackets earners, personal income tax brackets have been raised by 5%. This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after 1 March 2021. The corporate tax rate will be reduced to 27% from 28% after 1 April 2022. This is an important decision that can assist to bring down the high employment rate.
3. Excise taxes, commonly known as sin taxes, will increase across the range of cigarettes, beer, whiskey and wine by 8%. Sorghum beer, otherwise known as traditional beer will, however, not be impacted by a tax increase. This means that if you are a smoker for example, a packet of 20 cigarettes will cost you an extra R1,39c and a bottle of 750ml spirits for example will cost an extra R5,50.
- There will be an increase in the fuel levy by 27 cents per litre for petrol and diesel. “This will impact consumers negatively, directly through added transport costs and indirectly through added input costs across a range of goods and services,” says Raubenheimer.
- Public wages will be cut by R303 billion over four years. This is a critical aspect to consolidate the fiscal position of the government.
- The social grants budget will be cut by 2.2% over the next 3 years even though the number of beneficiaries is expected to increase to 300 000 over this period.
- Monthly social grant payments have been adjusted as follows:
- A R30 increase for the old age, disability and care dependency grants to R1890.
- A R30 increase in the war veterans grant to R1910.
- A R10 increase in the child support grant to R460.
- A R10 increase for the foster care grant to R1050.
- Infrastructure spend will receive R791.2 billion for repair or replacement of aging infrastructure.
- The unemployment crisis in South Africa was highlighted this week with the official unemployment rate reported at 32.5% as per Stats SA. Public employment programmes will receive R83.2 billion. This will be augmented by R11 billion for the Presidential Youth Employment Initiative, taking funding for employment to R94.2 billion.
- The Department of Small Business Development has allocated R4 billion over the medium term to township and rural enterprises. “This will hopefully assist in creating employment where it is needed most,” Raubenheimer says.
- The Department of Tourism has re-prioritised R540 million over the medium term to establish the Tourism Equity Fund (TEF) as one of the measures to support the tourism sector recovery.
- The Department of Justice and Constitutional Development is allocated R1.8 billion to improve business processes.