Finance minister Tito Mboweni’s 2019 budget will not fix the problems of SA, but it will not make it much worse either. That in itself is a positive.
Here are some of the key budget reactions from panelists at the FNB Portside briefing in Cape Town. The post-budget briefing was co-sponsored by SA Institute of Business Accountants (Saiba), FNB and SA Institute of Tax Professionals (Sait).
Tim Harris, CEO of Wesgro: Revenue as a percentage of GDP is falling, despite higher tax rates, which shows that government’s ability to increase revenue through higher tax rates is declining. The question is: did the minister of finance do enough to avoid a ratings downgrade?
Keith Engel, CEO of SA Institute of Tax Professionals (Sait): SA has one of the highest personal income tax rates in Africa at 45%, second to Zimbabwe at 50%. The Laffer Curve principle is kicking in (where higher tax rates produce lower revenue). The government is running out of room to grow revenue.
Prescribed assets off the table – for now
Janet Hugo, Financial Planner of the Year 2018, Sterling Private Clients: I was surprised that the minister made no mention of prescribed assets.
Keith Engel: I was worried the government would want to force investors to put 20% of their assets into state-owned companies.
On Section 12J tax incentives for venture capital companies
Tim Harris: The tax loss from 12J was R200 million over ther last year. I see a case for loosening 12J in order to get job growth going.
Janet Hugo: In many cases I have seen the selling of 12J investments is immoral. I would say only promote 12J investments if you understand the venture capital space.
On tax morality:
Janet Hugo: If government was stricter on how it was spending money, we’d feel better about paying tax.
On the positives and negatives of the Budget:
Mamello Matikinca-Ngewnya, FNB chief economist: We don’t see the economy growing more than 1,5%. Government thinks it will grow faster. We say: show us the evidence.
If Eskom does not show a turnaround, Moody’s could downgrade SA from stable to negative. One positive from the Budget was the saving of R50 billion in expenditure, half of this coming from (public sector) compensation. On the negative side, Eskom is continuing to rely on government support.
Busisiwe Radebe, Nedbank economist: we’re expecting growth to be 1,7% this year. That’s pitiful. We need to be cutting expenditure. The budget shows that government has cut expenditure, but for Eskom getting R23 billion a year. We need to be growing the economy faster to get revenue going. I think we have done enough to avoid a ratings downgrade.
In Trevor Manuel’s time (as finance minister) government spent more in hard times and less in good times.
Dr Tania Ajam, School of Public Leadership, University of Stellenbosch: If Eskom did not receive money (from the state), electricity tariffs would sky-rocket. We need core skills in state-owned companies, not political appointees. The National Health insurance is on hold, but this is needed to deliver socio-economic rights.
The transparency in SA is good, but the accountability is not there. The CA designation was (once) so sought after. Now people are wondering why become a CA? Even professionals need some introspection. We are really in the governance business. Ethical people do not need government jobs.
Keith Engel: It’s been reported that SA lost 1 million taxpayers in the last 3 years.
Professor Jackie Arendse, Rhodes University: Not much has been changed in this budget. By keeping the tax tables fixed, bracket creep works in favour of government. By not adjusting income tax brackets for inflation, government will generate R12,8 billion in additional revenue.
Why South Africans invest abroad:
Janet Hugo: They invest broad for two reasons. It’s bolt-hole money, and common sense says you must invest globally to lessen risk.
Tito Mboweni’s full Budget speech can be found here.