Finance Minister Tito Mboweni’s upcoming 2019 Budget Speech on 20 February will be a waltz with the recent SONA to the tune of the upcoming elections. This is according to Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants (SAIPA). Says Retief: “President Ramaphosa’s address set the tone for the budget, which must also keep ANC voter confidence high when the nation goes to the polls on 8th May. But with revenue collection under constant pressure and a shrinking taxation profile due to immigration, high unemployment and job losses, and the results of poor economic growth, the question remains - how will the President’s vision be funded?”
In his October mini budget speech, Mboweni stated outright that the country could not continue borrowing as it is currently doing. So it looks as if funding the budget with more debt is definitely Plan B. Yet the consensus among commentators is that any opportunity to increase primary taxes is limited and undesirable. The Finance Minister appears to agree, indicating that changes to the current personal and corporate income tax rate or VAT should be avoided.
However, the government may still have some wiggle-room with other taxes. These include adjustments to high ticket or luxury items, reducing tax allowances and deductions, and possibly extending its attack on estate planning and the use of trusts. Indirect taxes, such as sin tax - alcohol, cigarettes or sugar - might see further increases, as well as the Road Accident Fund and fuel levy. One would expect that the new Carbon Tax, scheduled to come into effect from 1 June 2019, will not be postponed further.
Mending the dam
An obvious place to find extra funds is by cutting huge losses in government itself. Specifically, these include the exorbitant wage bill and the cost of supporting several limping state-owned enterprises, among others. “Fix these first,” says Retief.
It is public knowledge that SARS’ capacity to meet its collection targets has been severely compromised. Mboweni did commit to mending SARS during the mini budget speech, so it follows that his next address should outline his plan for doing so, which includes the funds needed to address the aging IT infrastructure, and the appointment of a new Commissioner.
He has also been outspoken on his approach to correcting SOEs: stop bailing out Eskom and sell SAA. With an unsolicited - if sketchy - R21 billion offer for 51% of SAA on the table and the plan to unbundle Eskom, these should at least receive mention in his speech. But it is expected that any major policies or structural changes will be held over until after the elections.
In an election year the pressure is on to allocate money to fund the various initiatives, policies, and promises made, such as national health and free education. However, how can we afford this without significantly increasing our budget deficit or cutting other spend?
Furthermore, Mboweni previously stated that per head salary increases in government were often well in excess of inflation and had to be reigned in. A constructive policy for doing so should be a main feature of the budget, as well as at least a mention of the steps that will be taken to bring people to book for fruitless and wasteful expenditure.
“Whatever happens, these problems can’t be fixed by throwing more money at them and they won’t be resolved overnight,” says Retief. “However, by at least beginning to tackle them, their strain on tax revenues can be alleviated over time and that means a growing pool of income for other projects.”
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