Mboweni faces his toughest budget test
JOHANNESBURG - Finance Minister Tito Mboweni today faces his biggest budget conundrum as he tables his Medium-Term Budget Policy Statement (MTBPS) in the midst of the Covid-19 pandemic and a stagnant economy.
Experts yesterday said that the situation could force Mboweni to introduce new taxes despite the country’s shrinking revenue collection base. Some said he could turn to two places for income: borrowing or the tax base, but the latter is currently undesirable as the country’s debt nears R4trillion this year.
Mazars tax partner Bernard Sacks said the government’s decision to ban the sale of alcohol and tobacco during lockdown had come back to haunt the national fiscus, leaving Mboweni with very little room to manoeuvre.
“The reduced tax take is likely to lead to a reduction in service delivery,” Sacks said. “The only change we’re likely to see, in my view, is the introduction of an extraordinary, once-off tax or some sort of levy.”
Mboweni is under pressure to find money to fund the country’s ailing state-owned enterprises, including Eskom and SAA. SAA has already asked for at least R10billion to complete its restructuring while Eskom is faced with a R450bn debt. In June, Mboweni said he would announce the details of a proposal to recoup R40bn through tax measures over the next four years only in the February 2021 Budget.
However, the shrinking tax base may push him to give some indication as to where this tax measures would be claimed from amid a R100bn job creation expenditure as per economic recovery plan.
Moreover, the government is estimated to have lost R1.5bn a month in tax revenue from the ban on alcohol sales alongside the cigarette ban during the hard lockdown.
Sacks said if a solidarity type of tax was introduced, it was going to accelerate the emigration already being experienced. He said the excise duties and value-added tax charged on these products could be significant sources of income for the government.
The SA Revenue Service collected around R47bn in excise duties from primarily alcohol and cigarettes in the 2019/20 financial year.
Mboweni has already warned of a R300bn revenue shortfall for this year as he revised down the gross tax revenue from R1.43trln to R1.12 trillion.
He has proposed spending adjustments of about R230bn over the next two years.
South Africa’s levels of indebtedness have remained a concern for many, with fear that the country might find itself in a debt trap in the medium-term and impact on its creditworthiness.
Investec’s chief economist Annabel Bishop said South Africa’s elevated debt projections make a credit ratings downgrade post MTBPS very likely from all three big ratings agencies.
“South Africa’s rising credit risk, which is reflective of increased investor concerns of a possible eventual debt default, is resulting in reduced foreign interest, with prices falling as supply balloons,” Bishop said.
“This will likely weaken the domestic currency. The domestic currency will fail to return to its level of R14/US dollar at the start of this year as the deterioration in public finances is too vast.”
The rand yesterday appreciated against every single G10 currency and drew support from US stimulus hopes as it touched R16.13 to the dollar, despite risk aversion sweeping across financial markets.
FXTM’s Lukman Otunuga said the future direction of the rand would be heavily influenced by how markets react to the MTBPS.
“Given how South Africa’s fiscal deficit is projected to widen more than forecast in June’s emergency coronavirus budget, such a development may weigh heavily on the rand and sentiment towards Africa’s most industrialised economy,” Otunuga said.