‘Structural reforms for growth are necessary’
The Budget also highlighted that chronically poor economic growth continues to put pressure on tax-revenue collection, says senior FNB economist Siphamandla Mkhwanazi.
“While significant cuts were made to the government’s non-interest expenditure, the decision to not raise additional revenue from tax proposals in 2020/21 left the Budget deficit largely unchanged. As expected, further assistance was offered to state-owned entities, particularly Eskom. The fiscus, as it stands, leaves the government between a rock and a hard place, as sovereign debt continues to rise at increasingly unsustainable levels,” Mkhwanazi says.
“The fiscal deficit remained largely unchanged. The estimate for the main Budget balance is expected to widen to -6.8percent of GDP in the 2020/21fiscal year, before narrowing marginally to -5.9percent in 2022/23.
“The main tax proposals were aimed at providing some relief in 2020/21, and minimising tax base erosion. Amid some of the major tax proposals, the National Treasury’s Budget provides some personal income tax relief, limits corporate interest deductions in order to disincentivise profit shifting, and restricts the ability of companies to fully offset assessed losses from previous years against taxable income.
“On government expenditure, significant reductions were made, with R160.2billion in reductions in the public sector wage bill proposed, together with additional cuts to baselines. The proposed total baseline reductions in planned spending amount to R261bn, but will be partially offset by additional allocations of R111bn to SOEs.”
Buyisile Maseko, head of growth at FNB home finance, says to support the property market, the threshold for transfer duties has been adjusted.
“Properties costing R1million or less, will no longer be subjected to transfer dues. This will benefit prospective buyers and help encourage home ownership in South Africa. With the steady increase in property prices over the past 24 months, this is a welcome relief to those wanting to enter the property market. The threshold for transfer duties is positive news as it provides some relief for first-time owners.”
Chantal Marx, of FNB wealth and investments, said the Budget Speech struck a delicate balance by being both bond and equity friendly.
“Generally, what would happen is an equity friendly budget would not be a bond friendly budget. Equity friendly is usually when expenditures are up and taxes are down, meaning that people have more money in their pockets and this is usually good for markets, particularly for the JSE and South African stocks. A bond friendly budget usually has a decline in expenditure and higher taxes.
“This means more money is available to bond holders and other people who are owed money by the government,” Marx says.