Kudos to Tito Mboweni's tax relief for plans to curb wasteful expenditure
JOHANNESBURG – Finance Minister Tito Mboweni on Wednesday received a thumbs up for the 2020 Budget Review, which contained a surprise tax relief for cash-strapped consumers and plans to curb wasteful expenditure.
Mark Goulding, EY Global Compliance & Reporting Partner, said yesterday that the Budget was a good budget for both individuals and companies.
“A clear acknowledgement that South Africa already has a relatively high tax-to-gross domestic product (GDP) ratio compared with our peers,” said Goulding.
However, the widening Budget deficit to 6.8 percent of GDP in 2020/2021 was the largest shortfall since 1992, commentators said.
In her reaction to the Budget, Lullu Krugel, the chief economist for PricewaterhouseCoopers (PwC), said South Africa’s public debt was heading only one way – up.
“It is important to note that the pro-consumer fiscal stance – not increasing VAT and above-inflation personal income tax relief – is a short-term boost to the economy with long-term implications.
“Easing the household tax burden today requires increased government borrowing tomorrow, and a higher debt burden for taxpayers to carry in the future,” Krugel said.
Treasury warned that the risk to South Africa’s remaining investment-grade credit ratings had become more pronounced.
“Indeed, the road ahead for the country’s sovereign ratings is all but rosy.”
Moody’s Investors Service – the only rating agency still providing South Africa with an investment-grade rating – has already placed the country on a negative outlook.
Paul Makube, a senior agricultural economist at FNB Agriculture, said that given the extremely difficult economic climate in which the Budget speech was delivered, the immediate feeling was fairly positive.
“The fact that the minister focused on wasteful expenditure and cost savings from a government perspective shows the government’s intent, but implementation will be key,” Makube said.
National Treasury revised its gross domestic product (GDP) growth prospects to 0.9 percent this year and 1.3 percent in 2020, compared to forecasts of 1.2 percent and 1.6 percent, respectively, announced in October 2019.
Treasury said that government planned to make R160 billion in staff savings over the medium term, though this still needs to be negotiated with labour unions.
The Minerals Council South Africa said it believe Mboweni had taken several important steps to begin to address South Africa’s economic crisis but it was a just a beginning.
Council chief executive Roger Baxter said: “It is critical that public sector debt service costs are reduced so that they are no longer a major encumbrance on society.
So further hard work is required on managing expenditure growth downwards.”
Bernard Sacks, a tax partner at Mazars, said Mboweni had walked the tightrope in delivering his speech.
“In an effort to preserve the last remaining investment grade status he had to demonstrate to the ratings agencies that South Africa was applying appropriate measures of fiscal discipline in cutting expenditure and limiting the amounts allocated to underperforming state-owned entities, while not overburdening South Africans with taxes,” Sacks said.