Photo: Chris Ratcliffe/Bloomberg
Photo: Chris Ratcliffe/Bloomberg

Tax relief comes as welcome surprise

By Dineo Faku Time of article published Feb 27, 2020

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Finance Minister Tito Mboweni yesterday 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 and 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.

Reacting to the Budget, Lullu Krugel, chief economist at PricewaterhouseCoopers, 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.

The National 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 - already has 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.

The National Treasury revised its GDPgrowth prospects to 0.9percent this year and 1.3percent in 2020, compared to forecasts of 1.2percent and 1.6percent, respectively, announced in October 2019.

The Treasury said that the government planned to make R160billion in staff savings over the medium term, although this still needs to be negotiated with labour unions.

The Minerals Council South Africa said that it believed Mboweni had taken several important steps to begin to address South Africa’s economic crisis but it was 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 that 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 under-performing state owned entities, while not overburdening South Africans with taxes,” Sacks said.

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