Reserve Bank Governor Tito Mbeweni delivered his annual budget speech this month and revealed a country in economic crises.
The budget speech disclosed that SA is having to borrow R1.2 Billion a day but is only paying around R1 Billion per day toward its debt. This means the country’s debt levels are slowly growing all the time. A weak economy, in the midst of a worldwide economic slowdown, means exports are down and internal tax revenue efforts have been rather disappointing.
Despite SARS collecting much much less than is needed to pay the bills (around R43 Billion less than was hoped for) additional funds are having to be set aside to try to save Eskom (as well as others such as SAA). The failure of Eskom who is the country’s biggest power supplier is seen as a systemic threat to the country. Already the rolling ‘loadshedding’ is estimated to cost the country a much needed R1 Billion per day.
By letting public servants retire earlier and by not replacing those who leave many departments, Government plan to reduce their wage bill by around R37 Billion over the next 3 years. The 2018 public sector wage increases have seen salaries go up but because a large number of people have already left their government jobs, so far Government has not had to shell out the projected additional R30 Billion shortfall that resulted from the above inflation increases.
The plan also encompasses cutting performance bonuses as well as letting senior experienced but higher paid staff go and rather hiring less experienced younger staff. The idea is sort of to let 2 more experienced staff go and bring on only one less experienced worker. Admittedly, this is going to see a “brain drain” as those with experience leave and are not able to train those trying to fill the resulting gaps. This will impact negatively on service delivery.
Currently, there are already around 16 000 less public servants than back in 2015.
There are no proposed increases in corporate or individual taxes. It seems that recent increases in taxes have not helped generate more income (in fact government tax income is down).
‘There are no proposed increases in corporate or individual taxes’
The tax free threshold (if you earn less than this figure you don’t get taxed) will go up slightly from the previous R78 150.00 per year to a nice round R79 000.00 per year. This it is hoped will provide further tax relief for lower income earners ( those earning less than R6 580/month). There will also be a very slight upward adjustment of the various earning brackets to help offset inflation somewhat.
Treasury deputy director-general Ismail Momoniat later said there were several reasons for not increasing personal and corporate taxes. It is felt by Government that it is better to cut expenses than try to get more tax income in an economy where people are earning less anyway.
There will be the traditional increase in sins taxes such as an R1.14 increase for a pack of 20 Cigarettes (time to quit and save?), R0.22 on a 750ml bottle of wine or extra R4.54 for 750ml bottle of spirits.
- A can of beer: 12c increase to R1,74
- 750ml bottle of wine: 22c increase to R3.15
- 750ml bottle of sparkling wine: 84c increase to R10.16
- A bottle of whisky: R4.54 increase to R65.84
- A packet of cigarettes: R1.14 increase to R16.66
- Cigars: 64c increase to R7.80
There will be an increase in the fuel levy of another 29 Cents on petrol and 30 Cents for diesel (above the current levy).
Draft rules should be available in regard to the coming carbon tax by next month as the new tax is scheduled to come into effect in June this year.
Government is looking into taxing gambling so as to fund programmes to try to get people to stop gambling or get rehabilitation if addicted.
Grants for disability, veterans, and care dependency will go up by R80 to help offset inflation and Child Support grants will go up by R10.
Ratings Agencies and the Rand V Dollar
Moodeys is the final rating agency to keep SA just above the international “junk” level. This rating is expected to hold in place until after the country’s elections midyear. Once the rating drops to “junk” many foreign investors (who are already nervous over land expropriation) will have to move huge amounts of investment out of SA, and Government having to pay higher rates for debt, which will, in turn, knock the economy even harder.
As soon as the rather candid budget speech began the Rand began to lose further value against the US Dollar.
‘SA is having to borrow R1.2 Billion a day but is only paying around R1 Billion per day toward its debt’
Income: Dropped by a further R43 Billion. The bad economy means less tax income.
Expenses: Salary cuts and minimal increase in spending are the preferred strategies for now. Spending money to pay for free tertiary education and trying to save Eskom are needed.
Debt: Despite paying around R1.2 Billion/day toward servicing debt, levels are slowly increasing.
Things look bad and there is little obvious source of turning things around as debt has risen to 60% of GDP.
Watch the Speech