Tito’s sweet ’n sour recipe

PLAN: RELIEF IN NO TAX INCREASE AND HIGHER GRANT, BUT SINS WILL COST

While drinkers and smokers are penalised, there is relief that there will be no tax increases for ordinary taxpayers and social grants will be increased as the finance minister digs in his heels on spending and sticks to fiscal discipline.

Finance minister digs in his heels on spending and sticks to fiscal discipline.

Tito Mboweni’s recipe for a turnaround in the SA economy – promising a budget surplus in four years – contained both sweet and sour, with some bitter, especially for those hoping e-tolls would be scrapped.

Mboweni, who described his financing proposals for 2021-22 and for the medium term, up to 2024-25 when there will be a primary surplus on the main budget, gave with one hand and took away with the other.

There will be no tax increases for ordinary taxpayers, as mooted in last year’s Medium-Term Budget Policy Statement (MTBPS). On the contrary, tax brackets will be adjusted upwards by 5% to offer relief for lower-paid earners, with the tax threshold lifted to R87 300 per annum, an effective relief of R2.2 billion. The corporate tax rate will be lowered to 27% from the assessment year beginning on

April 1, 2022 and further consideration will be given to further rate decreases “make our tax system more attractive”, said Mboweni.

More than R10 billion has been allocated for the purchase and delivery of Covid-19 vaccines over the next two years. The contingency reserve will be increased from R5 billion to R12 billion to make provision for the further purchase of vaccines and “to cater for other emergencies”.

Increases in government grants.

Increases in “sin taxes” on alcohol and tobacco products. Increase in the fuel levy. There was a clear signal from Mboweni that the controversial e-tolls scheme would not be changed.

Mboweni said government had committed to a R791.2 billion infrastructure investment drive and was partnering with the private sector on the initiative. “However, all these efforts to expand infrastructure will be wasted if the end user does not pay a cost-reflective tariff for usage.”

Economists were impressed with the Budget Review, saying it was the best under the circumstances and lauding the minister for not increasing income tax and digging in his heels to ensure fiscal discipline.

Prof Jannie Rossouw, head of the School of Economic and Business Sciences at the University of the Witwatersrand, was happy personal income tax relief would be higher than inflation and welcomed the lowering of the corporate income tax rate. “But we must remember all of this rests on the ability of government to control its salary bill.”

Rossouw also welcomed that government debt would remain under 90% of the GDP. This would avert future downgrading from credit agencies.

Doelie Lessing, director at Werksmans Attorneys, said what was the best and biggest news: no tax rate increases and no new taxes introduced. She said prospects of reduced corporate and individual tax rates in future years were promising.

Dr Elna Moolman, head of macroeconomic, fixed income and currency research at Standard Bank SA, said, as expected, revenues are stronger than government’s previous MTBPS forecasts. “This meant that no tax hikes were required, despite the increased spending on grants, vaccines and the presidential employment programme.”

She was happy Treasury also strongly signalled it would avoid future tax hikes. “The one exception is a potential future wealth tax, on which more research is being done.”

Ettienne le Roux, chief economist at RMB, said: “Kudos to the minister for digging in his heels. Instead of buckling under constant pressure to spend more, he remains steadfast in pursuit of fiscal discipline.”

Le Roux also found staying the course with regards to wage bill restraint commendable. “Growing the bill at 2% to 3% below projected inflation will take some doing, but it is a crucial part of what is necessary to turn the country’s debt trajectory around.”

He said notwithstanding a slightly improved debt trajectory, debt service costs would still absorb around 21c of every R1 of revenue collected.

Dr Lumkile Mondi of the Wits School of Economic and Business Sciences said government’s infrastructure programme was not a pipe dream anymore. “In the past, government roll-out of infrastructure was fraught with corruption, but when private companies get involved, they will be watching the money.”

All this rests on govt to control its salary bill