An interesting budget for an interesting year
Tito Mboweni has a difficult task in next week’s budgetwith the economy so weak and the ever-present Eskom issue
2019 is shaping up to be an interesting year. Finance minister Tito Mboweni has a tough task ahead of him as he seeks to present a budget that will meet with public approval ahead of the national election, while also coming to terms with the pressing need to grow SA’s economy.
At last year’s medium-term budget policy statement, delivered in October, the minister spoke of the need to reform and stabilise state-owned enterprises (SOEs). The state faced a R27.4bn revenue shortfall for 2018, and an R85bn shortfall over three years. Debt service costs are expected to grow by almost 11% every year, from R181bn in 2018-2019, to R247bn in 2021-2022, according to the med-term budget.
SA’s GDP is expected to grow 1.3% this year according to the World Bank’s January forecast — higher than last year, but still a concerning rate.
There are also fears that Moody’s, the only agency to rate SA above junk status, may drop its rating and the budget speech will be a key factor Moody’s will weigh up, as it gives direction on government priorities and spending plans. It is likely that the long-term priority areas of the National Development Plan (NDP) will continue to guide this year’s budget.
In this climate, it is hard to see how the National Treasury will be able to prioritise the National Health Insurance scheme, despite the years of planning and political will
cWith the economy still weak, it is hoped that Mboweni and his colleagues at the National Treasury will prioritise growth and investment. Eskom has asked for a R100bn bailout from the government so that it can stabilise its finances, and is being pushed to deliver a turnaround plan ahead of the budget presentation on February 20, according to reports.
Eskom’s role in the economy is a critical one, with the World Bank warning recently that it is too big to fail. It’s likely, then, that funding Eskom will occupy a central position in the budget. In addition, former president Jacob Zuma, last year, committed the government to funding tertiary education for students with an annual household income of R350,000 or less, costing the fiscus R57bn — a decision that will continue to impact this year’s budget despite concerns that this is not sustainable.
In this climate, it is hard to see how the National Treasury will be able to prioritise the National Health Insurance (NHI) scheme, despite the years of planning and political will which have gone into this initiative.
LISTEN: What to expect from this year's National Budget:
SA’s economy has seen low growth over the past few years and consumers are feeling the pinch, with last year’s tax shortfall reaching R27.4bn. Since raising taxes will be difficult, one way of bringing in additional revenue is by increasing collections and building capacity at Sars. This is expected to be a priority, as the mid-term budget already allocated R1.4bn to this task in October.
While the government will find it difficult to raise taxes so close to an election period, and with local taxes already relatively high, we can expect to see some adjustment of tax brackets so as to tax high-income earners more and give relief to lower-income taxpayers.
Another VAT increase is also not likely, particularly so close to the elections, but further clarity and guidance is needed on certain aspects of VAT regulations, for example, the treatment of educational services, electronic services, VAT deductions, and crypto-currency.
• Ndlovu is MD, Deloitte Africa Tax & Legal.