For the first time in five years, government gave some relief to over-stretched South African taxpayers.
This was welcome news, and should stimulate economic growth, according to delegates at the 2020 Budget Review Trilogy at FNB Portside in Cape Town on Wednesday, which was hosted by SA Institute of Business Accountants (Saiba), SA Institute of Tax Practitioners (Sait), Financial Planning Institute (FPI) and The Tax Faculty.
However, David Ansara of the Centre for Risk Analysis cautioned against too much optimism: government plans to spend R1.9 trillion while raising just R1.54 trillion in revenue, leaving a budget deficit of about 6.5%, rising to 6.8% next year, before falling to 5.7% in 2022/3.
“What the government has done in this Budget is kick the can down the road,” said Ansara, adding that economic growth is forecast at 0.9% in the current fiscal year, rising to 1.6% the following year. “We need to take these projections with a pinch of salt,” he says.
Debt servicing costs are the largest single line item in the Budget, with debt-to-GDP now running at 65%. This is fast approaching danger levels, though is unlikely to impact the balance of payments as just 10% of SA’s debt is denominated in foreign currency.
Wayne McCurrie of FNB’s Wealth and Investments business unit said future economic growth projections are predicated on government delivering on plans to cut the public sector wage bill by R160 billion over the next few years. Failure to make these public sector wage cuts could derail what is being touted as a “stimulus” budget.
Warren Harris of the Department of Treasury’s economic tax analysis unit says the growth projections are realistic – though finance ministers have been notoriously optimistic in forecasting growth, over-stating growth rates in virtually all of the last 10 years.
Keith Engel of Sait said the Budget was clearly aimed at restoring investor confidence and keeping Moddy’s off our backs. The ratings agency has been keeping a close eye on economic and political developments in SA. Any further slippage meant a likely further credit downgrade for SA, which would cause a flight of capital from the country. Engel suggests this budget may have saved SA from this eventuality.
Dr Zolani Buba of Inolaz Advisory said the crucial issue for government was whether it could win the fight against trade unions to cut public sector wages by R160 billion in the coming years. “We’ve heard stories of municipalities using salary money to pay other creditors, leaving they staff unpaid,” he said.
“The minister of finance noted that there might be some setbacks in wage negotiations (over public sector wage cuts). There is a realization that we’ve raised taxes for the last five years and igrowth has tanked, so we can’t motivate for another increase in tax,” said Harris.
Ansara said SA had reached the limit of the so-called Laffer Curve – which show that tax receipts start to decrease as tax rates increase. It was therefore time to give taxpayers a breather. By putting more cash into the taxpayers’ pockets, this theoretically boosts consumer spending and economic growth.
The continued support for SAA is highly questionable, as it has already swallowed billions of rands in government-backed bail-outs. Likewise, the R2 billion in support for the national prosecutor to pursue those implicated in the Zondo Inquiry into state capture should not be confused with structural reform. Attempting to collect money siphoned off through corruption may sound like a good idea, and certainly sends a powerful message to the guilty, but there is no history of this having any degree of success in SA.
Engel said taxpayers were feeling the stress of creeping inflation and higher taxes, so this Budget should give them some relief.
McCurrie said times may be tough, but they’ve been tougher in the past and yet we survived. “Banks are growing their loan books by single digits. Personal indebtedness was higher 10 years ago,” he said.
Don’t forget to book to see the Budget follow-up events in Durban and Johannesburg.