Markets and businesses have welcomed Finance Minister Enoch Godongwana’s budget that provides personal income tax relief and reduced the tax burden on corporates.
It also reprioritised government spending and committed to reducing the government’s salary bill and shifting allocations towards goods and services aimed at improving service delivery.
Spending on infrastructure like roads, rails, and ports has also been increased.
“Perhaps a broader macro elephant in the room was related to Eskom’s debt. Eskom’s debt remains the most significant albatross around South Africa’s neck. That said all in, it was a reasonably string budget aided by significant overrun in revenues, aided by the mining sector. I would rate it an eight in terms of both relevance and significance,” says Standard Bank Chief Economist Goolam Ballim.
Minister Enock Godongwana delivers the Budget Speech in Parliament:
Godongwana said that power utility Eskom remains to be in financial distress and that the state will continue extending financial assistance to the power utility while it looks for alternatives.
“To date, Eskom has been provided with R136 billion to pay off its debt with a further R88 billion until 2025/26. We acknowledge, however, that Eskom is faced with a large amount of debt that remains a challenge to service without assistance. The National Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders. Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring. We expect Eskom to take further steps towards cost containment, conclude the sale of assets and implement operational improvements to enhance the reliability of electricity supply.”
Tax relief
Godongwana’s budget speech has provided tax relief to the tune of R5.2 billion. The Minister said this is to help support the economic recovery, provide some respite from fuel tax increases as well as boost incentives for youth unemployment.
He said the tax relief on Personal Income Tax and Corporate Taxes is to counter the effects of the inflation rate.
He has increased the tax threshold of taxpayers for this financial year. People below the age of 65 years will only pay tax if they are earning R91 250.
While only those between the ages of 65 and 74 years earning R141 250 will be taxed, and 75 years and older must earn R157 900 to be taxed.
“Madam Speaker, households and businesses are still under financial pressure and are coping with higher obligations, the effects of COVID-19 and increased fuel prices, now is not the time to increase taxes and put the recovery at risk accordingly. We have decided to keep money in the pockets of South Africans.”
Social grants
The bulk of the budget is allocated to social grants. Godongwana said the Department of Social Development will receive R58.6 billion over the medium term. A total of 18.6 million people will be recipients of social grant support between April 2022 and March 2023.
A new extended child support grant for double orphans will be introduced. Godongwana said R44 billion will be allocated to the Social Relief of Distress (SRD) grant. The Minister said that the country now pays grants to more than 46% of the population.
Director at the Centre for Social Development in Africa Professor Lauren Graham says the budget provides a good balance in terms of the issue of the grants:
Growth outlook
The National Treasury projects that the country’s economy will grow by 4.8% in 2021 and 2.1% in 2022. Treasury noted that higher than anticipated growth in revenue has helped to narrow the budget deficit and debt.
Godongwana said the fiscal outlook is subject to significant risks including slowing global and domestic economic growth, more difficult global borrowing conditions, and calls for a permanent increase in social protection that exceeds available resources.
Tax revenue collections have outperformed last year’s budget projections. A revenue over-collection of R182 billion was achieved in the current financial year.
Godongwana said the government will use a portion of the additional revenue to accelerate debt stabilisation, promote job creation and support the public health sector.
“This positive surprise has come mainly from the mining sector due to higher commodity prices. The improved revenue performance is not a reflection of an improvement in the capacity of our economy. As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices. To be clear, any permanent increases in spending should be financed in a way that does not worsen the budget deficit.”
Business reacts to the Budget Speech:
