Revenue growth aids Budget
THE 2021 BUDGET painted a rosier picture than the October 2020 Medium-Term Budget Policy Statement (MTBPS) as revenue growth was stronger than expected, in part due to higher commodity prices recently.
This meant that the contraction in 2020 was revised to 7.2 percent from October’s 7.8 percent, while the higher revenue in 2020/21 meant that tax revenue projections were higher than the 2020 MTBPS estimates by R85.6 billion in 2021/22, R65.5bn in 2022/23 and R45.3bn in 2023/24.
Finance Minister Tito Mboweni thus increased the revenue estimate in anticipation of better than expected revenue collections to R1 212.2bn and the 2021/22 estimate was set at R1 365.1bn.
This allowed the Treasury to suspend R40bn in tax increases to help boost economic activity, while debt issuance would be reduced, helping the capital market.
Approximately R9bn would be allocated for free vaccines against Covid-19, which should allow South Africa to return to normal economic activity sometime next year. Individuals would get tax relief of R13.4bn as tax brackets were adjusted higher by some 4 percent, which is more than the 3.3 percent inflation rate of 2020.
The public sector wage bill would be reduced by early retirement of public servants. Ordinary public servants could take early retirement at age 55, while teachers could take early retirement at age 45.
In 2019 the expectation was that the early retirement programme would reduce the public sector headcount by some 30 000, but as of the end of 2020 only a tenth of this reduction has been achieved.
The reduction in the civil service wage bill remained a government priority. Compared with the 2020 Budget, main Budget non-interest expenditure would be reduced by R264.9bn, or 4.6 percent of gross domestic product over the next three years.
Debt service costs, on the other hand, would continue to escalate with debt service costs rising to R338.6bn in 2023/24 from R162.6bn in 2017/18.
The South African Revenue Service (Sars) yesterday said it welcomed the upwardly revised revenue collection estimate announced by Mboweni.
“The Covid-19 pandemic has had a devastating impact on tax revenue collection due to the economic collapse far greater than that of the 2008 financial crisis.
“Key risks to economic growth and revenue remain the effect of the Covid-19 pandemic. This has precipitated job losses together with retrenchments, low consumption demand, strained company profitability following the lockdown and uncertain global demand,” it said in a statement.
However, Sars said since October 2020 there had been a stronger-than-expected rebound in domestic value-added tax and customs duties flowing from the rise in consumption once lockdown restrictions were eased.
Monthly domestic VAT collections since August were higher than the corresponding months in 2019 and fuel levy collections had also improved.
The stronger commodity prices towards the end of 2020 coupled with the depreciation of the rand had boosted commodity sales as global demand rose, thus underpinning the increase in collection of tax revenues from the mining sector.
Sars said the uncertainty in the economy was likely to persist in 2021/2022.