Public finances are dangerously overstretched, says Minister Mboweni
The Minister of Finance, Mr Tito Mboweni, said compared to October 2020, the country is in a better place. However, the assessment from the Supplementary Budget he delivered in June last year still stands: “Our public finances are dangerously overstretched,” he warned.
Despite the modest improvements in the South African fiscal position, he said: “Our borrowing requirement will remain well above R500 billion in each year of the medium term. Consequently, gross loan debt will increase from R3.95 trillion in the current fiscal year to R5.2 trillion in 2023/24.”
The government owes a lot of people a lot of money, including foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders. “We must shore up our fiscal position in order to pay back the massive obligations we have incurred over the years,” he said.
In 2020/21, the government expects to collect R1.21 trillion in taxes, which is about R213 billion less than their 2020 Budget expectations. “This is the largest tax shortfall on record,” he said. In 2021/22, the government expects to collect R1.37 trillion, provided its underlying assumptions on the performance of the economy and tax base hold. “I would like to take this opportunity to thank those South Africans who diligently continue to pay their taxes,” he said.
The 2021 budget proposed the following:
1. The corporate income tax rate will be lowered to 27% for companies with years of assessment commencing on or after 1 April 2022.
He said this will be done alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses.
“We will give consideration to further rate decreases to make our tax system more attractive. We will do this in a revenue-neutral manner. We also intend to leverage the insights of the Davis Tax Committee as we undertake this reform,” he said.
2. Personal income tax brackets will be increased by 5%, which is more than inflation. This will provide R2.2 billion in tax relief. Most of that relief will reduce the tax burden on the lower and middleincome households. This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after 1 March 2021.
3. Fuel levies will increase by 27 cents per litre, comprising 15 cents per litre for the general fuel levy, 11 cents per litre for the Road Accident Fund levy and 1 cent per litre f or the carbon fuel levy.
4. And an 8% increase will be added in the excise duties on alcohol and tobacco products.
Minister Mboweni announced that in this coming fiscal year, the South African Revenue Service (Sars) will establish a dedicated unit to improve wealthy individuals’ tax compliance. “This first group of taxpayers have been identified and will receive communication during April 2021.” In support of these efforts, he said: “We request that this House approves an additional spending allocation to Sars of R3 billion over the medium term.”