Executive summary of 2020 National Budget speech

Finance Minister Tito Mboweni started his budget speech with his usual aloe reference: “The Aloe Ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it.” Here’s the executive summary of this plus hour long discussion.

  • Finance Minister Tito Mboweni’s stated message for Budget 2020 is Consolidation, Reform and Growth.
  • In the fiscal year to end February 2021, the State’s revenue is projected to grow by 4.9% to R1.58trn (29.2% of GDP) with expenditure at R1.95trn (36%). This means a consolidated budget deficit of R370.5bn, or 6.8% of GDP. Gross national debt is projected to be R3.56trn, or 65.6% of GDP by the end of 2020/21.
  • State spending exceeded the Budgeted figure by R17bn. In the years ahead government spending is expected to grow at average annual rates of 5.1% mainly due to rising debt servicing costs. Treasury is budgeting for non interest spending to fall in real terms.
  • Eskom remains the top priority with a stable electricity supply cited by Mboweni as “our number one task.” Over the past 12 years Government has allocated R162bn in bailouts to State Owned Enterprises, 82% of which (R133bn) went to Eskom. Over the next three years the State will transfer a further R112bn to Eskom compared with the anticipated R69bn previously budgeted. The State has committed to inject R23bn annually into Eskom for the following seven years.
  • As a result of higher than budgeted spending and lower than anticipated revenues, a number of South Africa’s key financial ratios have blown out to record or near record levels. This stems from a collapse in GDP to just 0.3% growth in 2019 compared with the 1.5% projection in the National Budget a year ago. Treasury’s projected income and expenditure numbers are based on GDP growth projections of 0.9% this year, 1.3% in 2021 and 1.6% in 2022.
  • Mboweni expects the economy to receive a “number of jump starts” over the next 18 months, listing fruits of President Cyril Ramaphosa’s “reform agenda”; lower inflation; the interest rate reduction earlier this year; recent gains in prices of platinum group metals; the impending change to the electricity regulatory framework; and The tax proposals we are setting out today. On the other hand, problems with electricity supply with retard growth which is thus expected to average just over 1% during the next three years.
  • Primarily due to lower economic growth, revenue for the State’s 2019/20 financial year is expected to come in R63.3bn below what had been expected a year ago. This is R10bn worse than had been projected less than four months ago in the MTBPS. Personal Income Tax accounted for R25bn of the shortfall; VAT for R16bn; and Corporate Income Tax for R13bn.
  • The Budget Deficit for the past fiscal year soared from an expected 4.5% to 6.3% of GDP. The deficit is projected to rise further to a near record of 6.8% in the year ahead, the fourth successive increase after 2017’s 3.3%. This year’s deficit is the second highest on record, topped only by 7.1% in the pre-democracy-inflated year of 1993. The 2019 Budget Deficit was 4.2%.
  • Projected growth of 4.9% in tax revenue and continued spending increases means the public sector borrowing requirement continues to expand. After R280bn (5.7% of GDP) in 2019, it hit R333bn (6.2%) in the fiscal year to end February 2020. With lower revenue and higher spending, the State’s borrowing requirement is now projected to rise to R410bn (7.9%) in the year ahead and R454bn (8.4%) in 2022.
  • Higher borrowing will push the country’s Debt-to-GDP ratio from last year’s 56.7% to a projected 61.6% for 2020 and 65.6% in the year ahead. The ratio is projected to will rise still further to a record 69.1% in 2022 and a new peak of 71.6% in 2023. The ratio was 26% when former President Jacob Zuma was appointed in 2009. Debt servicing costs have risen over this period from under 10% of the State’s total revenue to 15% this year.
  •  The decision to avoid tax increases was informed by the near record tax-to-GDP ratio of 26.3% and a tax buoyancy ratio (tax revenue growth relative to economic growth) which has fallen to 0.93%. As a result, Treasury believes tax increases would have been counter-productive, pointing to VAT where collections have fell in the past two years despite an increase in the rate to 15%. Despite a rate increase in last year’s Budget, income from the fuel levy fell R3.7bn.
  • The rebuilding of SA Revenue Services is a top priority with implicated parties named in the Nugent Commission ejected and experienced personnel having returned. The Davis Tax Committee has been re-established and will focus on combatting tax leakages, customs fraud and trade mispricing. A new centre has been established to focus on wealthy individuals “who have complex tax affairs.” SARS is also applying a renewed focus on illicit and criminal activity.
  • Anticipated savings from the early retirement of public servants has not materialised with just 4 000 accepting packages offered compared with an anticipated 30 000. Treasury is budgeting for a R160bn reduction in a public sector wage bill which has increased by 40% in real terms over the past 12 years “without equivalent increases in productivity.”
  • Since 2008, South African Airways has incurred losses of R32bn and will receive a further R16.4bn from taxpayers in the next three years which has been put aside to settle the airline’s liabilities and interest.
  • Personal income tax remains the State’s biggest source of income, contributing 38% of total tax. A total of 308 000 taxpayers earning over R1m a year are paying R220bn of the R550bn generated in PIT – 40% of the total. A total of 6.8m registered taxpayers earn less than R83 100 a year, the new tax threshold.
  • Despite the injection of a further 9c a litre (from the overall 25c/l increase in fuel prices) the Road Accident Fund’s liabilities are forecast to exceed R600 billion by 2022/23. To address this, one of the options being considered is the introduction of compulsory third-party insurance.
  • On Industrial Policy, an Innovation Fund will be capitalised with R1.2bn over the next three years; industrial business incentives worth R18.5bn will create and retain approximately 56,500 jobs; an additional R107m is reprioritised for the refurbishment of 27 industrial parks in townships and rural economies; and R6.5bn is being allocated for small business incentive programmes of which R2.2bn will be transferred to the Small Enterprise Development Agency. Together with the Department of Trade, Industry and Competition, we are considering various proposals from ITAC related to scrap steel and poultry.
  • The National Prosecuting Authority, the Special Investigating Unit and Directorate for Priority Crime Investigation get an additional R2.4bn in this Budget. This will enable the appointment of approximately 800 investigators and 277 prosecutors who will assist with, among other things, the clearing the backlog of cases such as those emanating from the Zondo commission.
  • The new State Bank is ready to launch as a retail bank operating on commercial principles. It will be subject to the Banks Act, and will have “an appropriate capital structure and performance parameters on investments and loan impairments.”
  • South Africa’s Sovereign Wealth Fund has been created with a target capital amount of R30bn ($2bn). A relevant bill will be submitted during the course of this Parliament. Possible funding sources, include proceeds of spectrum allocation, petroleum, gas or minerals rights royalties, the sale of non-core state assets, future fiscal surpluses and money we aside from future Budgets.
(Visited 1,780 times, 7 visits today)