“This is not an Austerity Budget!” says Minister Tito Mboweni

2021 SA Budget Speech Summary

Earlier today we saw Minister Tito Mboweni, South African Minister of Finance deliver his 2021 National Budget Speech in the South African Parliament in Cape Town.

This is a summary of the speech as published earlier by Alec Hogg on biznews.com.

• The Section 12J tax incentive, introduced in 2008, will not be extended beyond its sunset date at end June.

• Tax on fuel will be increased by 26c per litre – 15c for the fuel levy; 11c for the Road Accident Fund. This comes into effect on 7 April.

• Excise duties on liquor and tobacco products have been raised by 8%. As a result, alcohol is expected to contribute an extra R1.1bn and tobacco R700m in the 2021/22 fiscal year. A new export tax on scrap metal is projected to deliver R400m to Treasury.

• Government is (again) promising to address SA’s rapidly rising public sector wage bill, budgeting to cut it by R265bn in the next three years. The cost of the SA public sector as a proportion of its economy is now matched only by the Nordic nations (Iceland, Denmark and Norway); is double that of Ireland, Korea, Switzerland and Germany; and 50% above the US, UK and the global average.

• The State’s wage bill has grown by 4% pa in real terms over the past decade compared with economic growth averaging 1,5%. Reversing this is a critical aspect of Treasury’s goal to balance the nation’s books – excluding interest payments – by 2025; ie bringing non-interest spending into line with total tax receipts.

• The country provided “one of the largest fiscal responses to the pandemic among developing countries” with government spending surging to a record 41.7% of GDP. This will continue in the current fiscal year with R9bn budgeted for vaccines which are expected to be rolled out in the second half of the year.

• SA’s Budget Deficit has ballooned to a record 14% of GDP, virtually double the previous peak of set in 1993. A year ago Finance Minister Tito Mboweni forecast a Budget Deficit of 6.2% which would have been the second highest ever. Government spending now exceeds R2trn a year.

• Higher government spending was funded by borrowing causing the country’s debt-to-GDP ratio jumping from 65.6% to 80%. For context, this important ratio of national indebtedness only broke above 50% in 2017 and rose over 60% for the first time last year.

• Despite the sharp increase in State spending, South Africa’s economy contracted by 7,2% in 2020, one of the hardest hit economies in the world. This is, however, an improvement on the minus 7,8% that had been projected four months ago. The direct cost to the economy of Covid-19 is thus quantified at R230bn.

• As a result of the economic contraction, gross tax receipts are projected to come in R213bn below what had been projected in the 2020 Budgeting process. This is, however, a R100bn improvement on the dire projections made in the MTBPS. The improvement due to easing of the lockdown in 3Q 2020, a better than expected global economic recovery (esp by China) and improved tax receipts from the mining sector.

• More than three quarters of the R213bn shortfall is due to four streams – Personal Income Tax (30%); Corporate Income Tax (19%); VAT (17%) and Excise Duty (11%).

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