Home Tax 2019 Budget highlights

2019 Budget highlights

  • Government gives power utility Eskom a record bailout, on condition it cuts costs
    • 23 billion rand a year for three years to cover debt-service costs and meet redemptions
    • First step in restructuring is a new transmission company, with independent board by mid-2019 – assets to include grid, substations, control center, and peak-power plants
    • Eskom must cut costs of 20 billion rand a year by 2022, excluding reduction in the wage bill
    • Government plans to sell off a stake in the new transmission company
  • “I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it,” Mboweni says
  • Budget deficit widens because of Eskom and as revenue falls short
    • Consolidated deficit is seen at 4.5% of GDP in 2019-20. That’s up from 4.2% forecast in the October mid-term statement
    • The shortfall comes down to 4% in two years
    • It’s also higher for the current fiscal year (until end-March) at 4.2% compared with the previous projection of 4%
    • Tax collection is 15.4 billion rand less than expected in October forecast
  • Personal income-tax brackets are not adjusted for inflation, with the bracket creep bringing in an extra 12.8 billion rand
  • No change in corporate tax rate and VAT
  • Debt ratio averages about 0.5 percentage point higher, pushing through the 60%-to-GDP mark
    • Gross debt is predicted to peak 60.2% of GDP in 2023-24 compared with the 59.6% given in October
  • The spending ceiling is intact this year but breached after that, mainly because of Eskom
    • It’s raised by 14 billion rand in the coming fiscal year, and 1.3 billion rand and 732 million rand the next two respectively
    • The increases are due to the money for Eskom, a new infrastructure fund and a census in 2021
  • Budgeted spending on state-worker wages falls as the government offers early-retirement options
  • The government wants to change how it supports state companies
    • Considers ending guarantees for operational purposes and a chief reorganization officer will be appointed whenever the state gives a guarantee
    • Equity partners will be found where possible
    • The contingency reserve in the budget is raised to cover requests for money to ensure support is budget-neutral.

Source: Bloomberg