The quiet theme this year was, by and large, fix it and manage it. This is consistent with the concerns of an increasing national debt burden, damage done by loadshedding and delinquent SOEs, a high unemployment rate, and numerous other systemic issues that South Africans and foreign investors have become all too accustomed to. In short, the tone in this year’s Budget Speech was very far from ‘business as usual’ but expressly not considered by the Minister to be an ‘austerity Budget’.
Whereas the tone of the Budget Speech may have painted a bleak picture for the economic outlook of South Africa over the short to medium term, there were no major tax proposals made this year.
However, there were welcome elements such as an increase in all personal income tax brackets to compensate for inflation, no increase in the fuel and RAF levies for the second consecutive year in decades, and the corporate income tax rate will be reduced to 27% in the coming year.
Potential Grey Listing
A particular thorn in our side over previous months has been the potential grey listing of South Africa, for which simply not enough has been done to date. Nevertheless, the Minister announced that 2 laws have been enacted to address most of the money laundering deficiencies that have been identified in South Africa, albeit not all of them. The remaining deficiencies will, according to the Minister, be addressed through new regulations and practices being introduced.
However, the reality of this is that it may be too little, too late, and we may soon see South Africa grey listed, which means increased compliance monitoring, and increased cost of transactions between South Africa and other countries. We will see this further develop in the coming weeks and months.
Electricity and Loadshedding
The largest economic constraint for South Africa, as confirmed by the Minister, is the havoc caused by loadshedding. Indeed, we are seeing record breaking levels of loadshedding, and South Africans will naturally be circumspective of more rhetoric without seeing action taken.
Nonetheless, the measures proposed include government taking over a portion of Eskom’s debt, to ease its debt pressure and to allow it to conduct maintenance to avail further electricity capacity.
Government is further introducing a number of measures to incentivise the instalment of solar panels and to drive further investment in renewable energy options. However, it seems far-fetched that these measures will lead to the results intended, and may well amount to limited, piecemeal relief measures.
Based on the consolidated government expenditure by function, debt-service costs remain our third largest expense. These costs have a higher average growth rate than expenditure on other functions (i.e., 8.9%) and, in three years’ time, the cost to service our debt will be our second largest expense. This speaks to the continued trend of borrowing money to fund our expenses, which includes paying down the debt and paying social grants to a massive portion of our population (including in the wake of the Covid-19 pandemic), and which will be further expanded. The reason for incurring this debt is, of course, to cover the shortfall in revenue collection, which brings us to the tax announcements made.
SARS Budget and Enforcement
The Minister spoke of the successes of SARS’ enforcement measures over the last 3 years, including in relation to illicit trade and for tobacco in particular. Encouraging to see is the increased propensity of SARS to refer these matters to the NPA, with 92 such matters referred for prosecution thus far.
Notably, National Treasury will be allocating additional budget to SARS. Provisional allocations have been set aside for the improvement of SARS’ revenue collecting capacity, with a direct allocation for its capital and Information & Communication Technology projects.
Short Term Gains Not Enough
SARS’ revenue collection was ahead of its own projections, which alone does not address the steadily increasing debt burden. We are simply not making sufficient progress in resolving this issue.
Government’s reliance on personal income tax is still concerningly high, as it has been for years, with an ever decreasing, and very small pool of taxpayers contributing the most revenue. Unfortunately, this means that there being no increase in the personal income tax brackets will not decrease the burden on wealthy taxpayers. In addition, SARS is anticipated to strengthen oversight measures in respect of these individuals to improve collection.
Overall, the new proposals set forth in this year’s Budget do not necessarily bode well for the country in the short to medium term. With many of the measures introduced being geared at minimising the strain on taxpayers across different segments of South Africa, perhaps taxpayers are somewhat happy with what they have heard in the Budget. Nonetheless, it seems that we are still treating the symptoms rather than the disease.