What the new National Budget means for your investments

*This content is brought to you by Shyft, the global money app, powered by Standard Bank

The new Budget lifts offshore investment limits while improving the domestic investment framework.

Finance Minister Enoch Godongwana’s maiden National Budget was aimed in large part at investors, and there was something for everyone – foreign investors, South Africans who want to invest abroad, and domestic savers. Some of the steps were bold, sending a signal that the government may finally be serious about implementing the economic reforms crucial for stimulating economic growth and creating jobs.

A little more offshore

Control on the movement of funds overseas has long been a thorny issue in South Africa, given the government’s concerns about capital flight and the fragility of the rand. That means that the lifting of the offshore limit for all insurance, retirement and savings funds to 45% of their capital (previous limits ranged from 30% to 40%) was a big move indeed. At the stroke of a pen, the National Treasury is now allowing such funds to deploy more of their capital overseas, giving South Africans more investment and savings options for their hard-earned money.

Chipping away at debt

Given its commitment to reducing the debt level and budget deficits with no significant tax hikes, the budget has been broadly welcomed by markets. The budget deficit is seen falling to a less burdensome 5.7% of gross domestic product (GDP), from 7.8%, and the debt to GDP ratio is stabilising at 75.1% of GDP by 2024/25 – that’s three percentage points lower than was forecast in November.

Tax relief on the cards

Meanwhile, taxes are staying the same or being whittled down (with the exception of the usual hikes on alcohol and tobacco, and an increase of the carbon tax).

“Now is not the time to increase taxes and put the recovery at risk!” Godongwana thundered from his podium. There is tax relief for individuals amounting to an estimated R5.2 billion from the adjustment of tax brackets, and the previously announced cut in the corporate income tax to 27% from 28% remains on track. That should throw some spare change into people’s pockets, providing more money for savings and investment.

What it all means

This is all supportive of the rand in the short term, which should bolster rand-based assets at a time when South Africans can also send more of their capital overseas. Of course, the Russian invasion of Ukraine, which came the day after the tabling of our National Budget, will hobble riskier emerging-market assets – including the rand. But Godongwana’s budget is at least providing the currency with some support in these turbulent and trying times.

The reduction in the corporate tax rate should also help to make South Africa a more attractive destination for foreign investment, including portfolio flows.

We can expect South African bond yields to fall as the risk of a default lessens and the downward trajectory of the sovereign credit rating is arrested. That remains true even if SA’s status remains in the “junk” category for years to come.

The bottom line is that the budget encourages investment abroad, while hopefully laying the framework for South Africa’s economic recovery.

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This post was sponsored by Shyft, the global money app, powered by Standard Bank. With Shyft you can buy forex instantly anytime, anywhere, and at the best rates, and invest in top US stocks and ETFs. Shyft was named Best Financial Solution at the 2021 MTN Business App of the Year Awards. Visit Shyft to download it now, no matter where you bank. Shyft operates under the license of The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287).

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