Johannesburg – With the State of the Nation Address (SONA) all but over, South Africans have turned their attention to the budget speech to see how their valuable taxes will be used.
While expectations of the budget speech might have been high, analysts were not anticipating any big surprises. Dick Forslund, Senior Economist, believes the minister of finance is following “a script” and said a loan taken out from the World Bank “is unnecessary”.
“He’s also following a script because they signed a so-called country partnership framework with the World Bank in June last year without anybody knowing it…. They have been taking or are about to take 750 million dollars. I regard this as a completely unnecessary loan really. I think it will continue with this harsh austerity policy.”
The taking out of this loan becomes worrying after it was announced government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term. This sum is owed to lenders domestically and abroad, said minister of finance Enoch Godongwana
Godongwana stressed the government is taking serious measures to stabilise debt to support economic recovery.
“The consolidated budget deficit is projected to narrow from 5.7 per cent of GDP in 2021/22, to 4.2 per cent of GDP by 2024/25.” he said.
In what comes as a shock to none, the government will continue to support Eskom financially. “To date, Eskom has been provided with R136 billion to pay off its debt with a further R88 billion until 2025/26,” said Godongwana. The National Treasury will continue to work on a viable solution to deal with Eskom’s debt.
The government has collected R200 billion more than they expected in tax revenue, said Forslund. The figure, as we know now, is R182 billion.
The government’s insistence on prioritizing the private sector over the public sector and placing all hopes in it will lead to them “building new smart cities instead of fixing the old ones, by the way [the city] has tens of thousands of jobs that need to be done, to fix water pipes or local roads or whatever you have to do,” said Forslund.
Forslund feels the government has “this strong belief that you can’t have a larger public service sector because then you are sort of strangling the private sector” and this belief is opposite to the one he has.
According to Forslund, the government’s priorities are in the wrong place if they want to “go the Chinese capitalist [route] to build new so-called smart cities”.
With the extra amount of tax revenue available, the social grants can be extended “no problem whatsoever” and the promise made by the president can be fulfilled, said Forslund. He went on to say they could increase the grant amount without any policy changes needed. The windfall of the tax revenue is so huge that he believes the government can “ride on” and “there’s no problem of financing and diverting the hunger crisis” in the next two to three years.
When it comes to corporate tax being reduced as was promised by the previous finance minister, Forslund would have rather seen it being taken off the table as it will result in “the state losing eight to 10 billion rand”. However, much to the dismay of Forslund, corporate tax was reduced from 28 percent to 27 percent, for companies with years of assessment ending on or after 31 March 2023.
Personal Income Tax was also adjusted by 4.5 percent meaning the annual tax-free threshold for a person under the age of 65 will increase from R87 300 to R91 250.
The employment tax incentive will also be expanded by a 50 per cent increase in the maximum monthly value to R1 500. This will provide additional support worth R2.2 billion.
Excise duties on alcohol and tobacco will increase by between 4.5 and 6.5 percent with the increase kicking in from today. Those who vape have also been warned this year will be the last year they can vape without tax. The government is planning to introduce a new tax on vaping products of at least R2.90 per millilitre from 1 January 2023.
For drivers, last year was an especially harsh year as the inland petrol price breached R20 per litre. This affected the cost of transport, which ultimately had a domino effect on the price of food. The good news is there will be no increases to the general fuel levy on petrol and diesel for 2022/23.
As the climate crisis gets worse, the government believes it’s up to us to make a change, in the form of the carbon tax rate increasing from R134 to R144, effective from 1 January 2022.
Godongwana pointed out they had not increased taxes in the major revenue generating categories, such as personal income tax, VAT and the general fuel levy.
Unemployment is on the rise in the country. There are different figures for unemployment based on the definition you are looking at, explained Forslund.
“You have a kind of more official definition where you exclude from the number those who say ‘no I haven’t looked for any jobs, I’ve given up looking for jobs’ and then they are taken out from the labour force. They are not a part of the employment [group] and then you have an official unemployment figure of about 36% but then you can also have an expanded definition where you include these people who have given up looking for jobs and then you come closer to even 50%, 48%, 49% unemployment so that is how it works.”
With the current policy that is in place, Forslund points out the World Bank has projected unemployment will increase.
“You will see the projection of unemployment forward to 2026 and with this economic policy, and this is really baffling me or puzzling to me, they project the official unemployment figures will increase from about 36 percent today to 38.5 percent in 2026. The economic policy that they are pushing, they don’t even themselves believe that it will solve this unemployment crisis at least not within the coming three, four years and well even five years because 2026 is quite far away.”
