Big thumbs up for Tito Mboweni’s tax relief

Pretoria News - - BR | NEWS - DINEO FAKU [email protected]

FI­NANCE Min­is­ter Tito Mboweni yes­ter­day re­ceived a thumbs up for the 2020 Bud­get Re­view, which con­tained a sur­prise tax relief for cash-strapped con­sumers and plans to curb waste­ful ex­pen­di­ture.

Mark Gould­ing, EY Global Com­pli­ance & Re­port­ing Part­ner, said yes­ter­day that the Bud­get was a good bud­get for both in­di­vid­u­als and com­pa­nies.

“A clear ac­knowl­edge­ment that South Africa al­ready has a rel­a­tively high tax-to-gross do­mes­tic prod­uct (GDP) ra­tio com­pared with our peers,” said Gould­ing.

How­ever, the widen­ing Bud­get deficit to 6.8 per­cent of GDP in 2020/2021 was the largest shortfall since 1992, com­men­ta­tors said.

In her re­ac­tion to the Bud­get, Lullu Krugel, the chief economist for Price­wa­ter­house­Coop­ers (PwC), said South Africa’s pub­lic debt was head­ing only one way – up.

“It is im­por­tant to note that the pro-con­sumer fis­cal stance – not in­creas­ing VAT and above-in­fla­tion per­sonal in­come tax relief – is a short-term boost to the econ­omy with long-term im­pli­ca­tions.

“Eas­ing the house­hold tax bur­den to­day re­quires in­creased gov­ern­ment bor­row­ing to­mor­row, and a higher debt bur­den for tax­pay­ers to carry in the fu­ture,” Krugel said.

Trea­sury warned that the risk to South Africa’s re­main­ing in­vest­ment­grade credit rat­ings had be­come more pro­nounced.

“In­deed, the road ahead for the coun­try’s sov­er­eign rat­ings is all but rosy.”

Moody’s In­vestors Ser­vice – the only rat­ing agency still pro­vid­ing South Africa with an in­vest­ment­grade rat­ing – has al­ready placed the coun­try on a neg­a­tive out­look.

Paul Makube, a se­nior agri­cul­tural economist at FNB Agri­cul­ture, said that given the ex­tremely dif­fi­cult eco­nomic cli­mate in which the Bud­get speech was de­liv­ered, the im­me­di­ate feel­ing was fairly pos­i­tive.

“The fact that the min­is­ter fo­cused on waste­ful ex­pen­di­ture and cost sav­ings from a gov­ern­ment per­spec­tive shows the gov­ern­ment’s in­tent, but im­ple­men­ta­tion will be key,” Makube said.

Na­tional Trea­sury re­vised its gross do­mes­tic prod­uct (GDP) growth prospects to 0.9 per­cent this year and 1.3 per­cent in 2020, com­pared to fore­casts of 1.2 per­cent and

1.6 per­cent, re­spec­tively, an­nounced in Oc­to­ber 2019.

Trea­sury said that gov­ern­ment planned to make R160 bil­lion in staff sav­ings over the medium term, though this still needs to be ne­go­ti­ated with labour unions.

The Min­er­als Coun­cil South Africa said it be­lieve Mboweni had taken sev­eral im­por­tant steps to be­gin to ad­dress South Africa’s eco­nomic cri­sis but it was a just a be­gin­ning.

Coun­cil chief ex­ec­u­tive Roger Bax­ter said: “It is crit­i­cal that pub­lic sec­tor debt ser­vice costs are re­duced so that they are no longer a ma­jor en­cum­brance on so­ci­ety. So fur­ther hard work is re­quired on man­ag­ing ex­pen­di­ture growth down­wards.”

Bernard Sacks, a tax part­ner at Mazars, said Mboweni had walked the tightrope in de­liv­er­ing his speech.

“In an ef­fort to pre­serve the last re­main­ing in­vest­ment grade sta­tus he had to demon­strate to the rat­ings agen­cies that South Africa was ap­ply­ing ap­pro­pri­ate mea­sures of fis­cal dis­ci­pline in cut­ting ex­pen­di­ture and lim­it­ing the amounts al­lo­cated to un­der­per­form­ing state-owned en­ti­ties, while not over­bur­den­ing South Africans with taxes,” Sacks said.

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