SA’s trillion dollar debt question: R3.9 trillion – projected to go up to R5 trillion – is a massive jump and a big gamble that the SA economy will pick in a few years, says Magnus Heystek. The Brenthurst Wealth Management founder said, after reading through the details, in sum this is not a bad budget. Conspicuous in its absence was an announcement on the relaxation of exchange control regulations to facilitate offshore diversification through funds. Heystek shares some thoughts on how the budget plays into asset allocation decisions. – Jackie Cameron
Magnus Heystek on the 2021 budget speech:
I think we got lucky. I think the finance minister himself gave it away during his talk, when he said there was an item of about R40 billion Rand for taxes, that was in the budget that’s been taken out. That was a little giveaway that we got. I think the nice upturn in the commodity cycle in the last three months of 2020 – with the added tax revenues – saved us from a great deal of hurt.
Sometimes luck counts in the world, investment markets and even things like drawing up a budget. Because by October last year, it was very clear that we were in very deep trouble and that substantial tax hikes are coming. Then suddenly the commodity cycle took off and our commodity companies are making massive profits, and they were able to soften the blow. So overall, not a bad budget. One or two slight adjustments to the company tax going down by 1% point and the increase in the tax levels by 5% was also welcome.
On the debt trajectory:
The big issue still remains our debt trajectory. That still remains the trillion dollar question. If you look at our debt currently – just under R3,9 trillion – projected to go up to about R5 trillion. That is a massive jump in our debt. It’s a very big gamble, because it’s based on the premise that our economy will pick up in the next two to three years and start generating serious profits, so that they can start reducing that debt overhang.
Get it wrong, and we will be severely punished. In conclusion, not a bad budget, the usual sin taxes to hit you there in your pocket. Slight relief for companies, but the gamble is getting bigger and bigger. I just think that Tito Mboweni had no choice to do what he did.
On Regulation 28:
We were all expecting some kind of announcement in this budget about the adjustment or relaxation of Regulation 28, with regard to offshore or inward investments into our market. But not a word about that. Just a brief commentary about Regulation 28 and the infrastructure spending. So no word about this issue that blew up about three months ago when, with the help of Magda Wierzycka and BizNews, the story broke about what this could mean. I still think the battle is raging behind the scenes, as to how much money local investors can invest via their pension funds or living annuities into offshore investment instruments.
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