The Minister of Finance Enoch Godongwana delivered one of the most positive budget speeches since 1994. He surprised most economists, analysts,’ politicians, the press and the public.
The general feeling was that apart from sin taxes (that always will be increased), most people expected some form of tax increase and definitely at least an increase in the Road Accident Levy Fund. The opposite happened, and the Minister almost gave the perfect budget for the current South Africa. He almost did the impossible and addressed most of the burning issues like:
– Lowering both the government’s deficit to gross domestic product (GDP) from 5.7 percent in 2021/22 to 4.2 percent in 2024/25.
– Decreasing the government’s debt to GDP from the projected 78.1 percent tabled in the Medium-Term Budget Speech (MTBPS) to 75.1 percent - much more than the 81 percent projected in last year’s budget.
– Projects to realise a primary fiscal surplus – where revenue exceeds non-interest expenditure – by 2023/24.
– Decrease the borrowing requirement by R135.8 billion this year and a total of R131.5bn over the next two years.
– Decrease the company tax rate from 28 percent to 27 percent.
– Decrease personal income tax by R 5.5bn by increasing the income tax brackets and rebates adjusted by 4.5 percent, in line with inflation.
– No increase in the fuel and road accident levy.
– Over the medium-term, R76bn is allocated for job creation programmes.
– Finance the special personal R350 grant till March 2023, costing R44bn.
– Support education: R32.6bn to finance students and R24.6bn for provincial education departments to address the shortfalls in the compensation of teachers.
– Support Health: An additional R15.6bn is allocated to provincial health departments to support their continued response to Covid-19, and to bridge shortfalls in essential goods and services. R3.3bn is allocated to absorb medical interns and community service doctors.
– Support law and order: R8.7bn is added to the Police budget
– Infrastructure Support: The South African National Roads Agency (Sanral) receives an additional R9.9bn for maintaining the non-toll road network. R2.1bn is allocated for raising the Clan William Dam. The Lepelle Water Board is allocated R1.4bn for the Olifantspoort and Ebenezer plants. The Umgeni Water Board is allocated R813 million for the Lower uMkhomazi Water Supply Scheme. Modernise six border posts, including Beitbridge, is at an advanced stage of preparation.
– R76bn is allocated for the job creation programme. In this Budget, an additional R18.4bn is made available for the Presidential Employment Initiative.
– Eskom will get an extra R88bn until 2025/26 billion for debt relief.
Why is this possible? The R186bn increase above projected revenue received through SA Revenue Service (Sars). This “injection” can be attributed to the global commodity boom (R86 billion) and the rest by the improved tax collection effort by Sars. This target could be reached despite the lower economic growth rate of 4.8 percent, from 5.1 per cent predicted in the “mini-budget”, or MTBPS.
A Once Off?
Is this remarkable improvement in the government’s finance only a once-off? The minister himself warned that the economy did not have the capacity to continue to grow at levels exceeding 4 percent. Treasury predicts that the economy will grow by 2.2 percent in 2022, and over the next three years, GDP growth is expected to average 1.8 percent. Therefore, if structural reforms and thy President's economic growth strategy is not going to work, the Fiscal position may deteriorate fast and furious in years to come.
To keep up this “healthier” fiscal situation, the following is necessary:
– Revise the energy, transport, and water sectors by allowing these “sectors” to introduce public-private sector involvement.
– Improve service delivery and cost of doing business considerably.
– Retain only potential “profitable” state-owned companies and rationalise or consolidate the rest.
– Implement the findings of the Zondo Commission as fast as possible.
– Addresses the pressures from the public‐service wage bill.
– Enhance and support SMMEs and job creation sectors.
Dr Chris Harmse is an economist at CH Economics
BUSINESS REPORT
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