Photo: File IOL.

JOHANNESBURG – The Minister of Finance, Tito Mboweni will deliver the annual budget speech on 20 February 2019.

Madelein Grobler, project director: tax at the South African Institute of Chartered Accountants (Saica) believes that in contrast with the SONA, there will be no second chances for the 2019 Annual Budget Review.

“During the delivery of the 2018 Medium Term Budget Policy Statement (MTBPS) on 24 October 2018, the Finance Minister indicated an estimated gross tax revenue shortfall of about R27.4 billion," said Madelein Grobler. 

“The shortfall was mainly attributable to a backlog of VAT refunds at the South African Revenue Service (SARS) and a slower corporate income tax collection due to weak economic growth.”

Predicted outcome

“Analysing historic trends, statistics and preliminary outcomes as provided by National Treasury, compared to the MTBPS revised estimates, it is predicted that the gross tax revenue deficit would increase to about R33.6 billion for the 2018/19 fiscal year. Hence an increase in the MTBPS shortfall estimate with R6.2 billion,” said Grobler.

“However, the main budget deficit of only R197.12 billion is expected, resulting in a clawback compared to the MTBPS estimates - mainly attributable to what seems to be underspent expenditure.  National Treasury’s increase of R9.2 billion towards actual expenditure during the 2018 MTBPS seems to have been a precautionary measure, as we estimate that actual expenditure will come in on average R15 billion below the 2018 Annual Budget estimate.”

“Given the continued revenue shortfalls in the 2018/19 fiscal years, we propose the following Budget Tips to the Minister of Finance:

Budget Tip 1 – No amendments to main revenue streams

Do not cause major upsets with tax hikes in the main revenue streams, such as personal income tax, corporate income tax and value-added tax (VAT). We saw in 2017 the introduction of a 45% tax bracket for high-income earners (earning more than R1.5 million a year), an increased inclusion rate for capital gain tax (CGT) at 80% and a 1% VAT rate hike during 2018. 

Budget Tip 2 – Focus on national government debt

In a minimalistic economic growth environment, estimated at 1.3% for 2019 according to the World Bank, other tips should be considered. A continued focus on national government debt is required.

During the MTBPS the gross loan debt was revised to 55.8% of Gross Domestic Product (GDP) or an enormous amount of R2.8 trillion in debt. We estimate that the cost of servicing this government debt will amount to almost R1.8 billion in 2018/19, representing about 14% of the main budget revenue.

Debt incurred today on operating expenditure that does not add to our children’s future means merely burdening them with such debt in future when they should be growing the economy and the country. 

The MTBPS noted that the key contributor to increasing debt is the instability in exchange rates. It was stated in the MTBPS that “the weaker rand accounts for about 70% of the R47.6 billion upward revision to gross loan debt in the current year”. 

It is paramount that the current Debt Management Strategy incorporates and implement a plan on how to stabilise the volatile South African Rand. The South African Reserve Bank (SARB) will play a pivotal role seeing as their primary purpose is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa and promoting financial stability.

Budget Tip 3 – Keep expenditure under wraps

Government’s expenditure needs to be kept under wraps. Analysing National Treasury’s Statement of Revenue statistics as of December 2018 and compared to last year’s figures, net revenue income increased with R72 billion, while the expenditure increased with R48.1 billion. This provides for an additional R23.9 billion available in the government’s pot should spending trends continue through quarter 4 of the 2019 fiscal year.

In comparison with last year’s figures, it seems like National Treasury has tightened the belt when it comes to expenditure though final outcomes will tell the full story.

However, more has to be done. During the MTBPS it was noted that R8.3 billion adjustments will be made to recapitalise South African Airways, South African Express Airways and South African Post Office. The bailouts towards State Owned Enterprises should stop and other proposals such as public-private sector partnerships should be explored. 

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