‘Cautious’ Budget on cards

Chances of radical thinking appear off the table as there is little room to manoeuvre

FINANCE Minister Tito Mboweni delivers his first Budget Speech next Wednesday at a difficult time for the South African economy. Even though President Cyril Ramaphosa has done much to restore business confidence in his first year in office, gross domestic product growth remains weak, government finances are in relatively poor shape, and renewed load shedding is hurting business confidence.

Judging from his Medium-Term Budget Policy Statement in October last year, I expect Minister Mboweni – backed by the team in the National Treasury – to deliver a relatively cautious budget. Much of the focus will be on refinancing state-owned enterprises (SOEs) and putting them back on to a sustainable footing.

We probably won’t see much in the way of radical thinking since the room to manoeuvre is so limited. Here are a few of the items I’ll be watching for this year:

National Health Insurance

Renewal of the country’s public healthcare system with a mandatory health insurance fund and free health care at the point of need has been the ANC government’s policy for years, but progress has been slow to date. There isn’t much money in the country’s coffers to fund something as ambitious as NHI, yet the government will want to show that it is advancing the concept ahead of the elections.

With an NHI bill to be tabled in Parliament soon, we could learn more about how NHI will be funded in this year’s Budget Speech – it’s still not clear whether we will pay for it through payroll taxes, VAT increases or other fundraising measures.

As an initial step, we could see medical aid tax credits reduced (or at least not adjusted for inflation) to free up some funding for the NHI.

Employment Tax Incentive

The ETI Act came into effect on January 1, 2014. As a fan of this incentive, I was delighted that President Ramaphosa announced that it will be extended for another decade in his State of the Nation Address. However, I have also long argued that the scheme is not performing to its true potential because it is so complex for payroll managers to administer.

The introduction of the national minimum wage adds even more complexity – until and unless the ETI Act is amended, Sars is of the opinion that the National Minimum Wage will not qualify as a “wage regulating measure”.

I hope the Budget Speech will announce steps to align the ETI with the national minimum wage and take other measures to simplify administration.

Tax hikes

I don’t expect any major increases to corporate or personal income tax this year since the taxpayer doesn’t have much more to give.

I think the top 45% rate will remain unchanged, while tax bracket creep relief (to compensate for inflation) will be limited to lower income earners. It seems unlikely that the minister will increase VAT again this year, given last year’s increase.

That means the minister is likely to look at “moral” taxes (sin and sugar taxes) to raise more money; we can expect another steep increase in the fuel levy.

Perhaps we’ll also hear about efforts to improve Sars’ revenue collection after several years of underperformance. The agency seems ripe for a turnaround strategy, with a high-powered team looking for a permanent chief to take the reins at Sars.