After a car crash, you’re lucky to escape with scratches. But when you’re driving a rusted-up jalopy that wasn’t roadworthy in the first place, you’re lucky to come out alive.
SA, judging by the budget speech given by finance minister Tito Mboweni on Wednesday, has been astoundingly lucky, given how dilapidated the skedonk is that we’ve been driving for the past few years. For a start, there’s the handy R100bn in extra revenue the government collected in tax this year, which it hadn’t expected it’d make a few months ago.
This last-gasp windfall gave it the breathing room to scrap the R40bn in tax hikes which Mboweni had said last year he’d have to implement over the next four years. It’s a major concession — but he probably had little choice.
"I requested tips from the public to help craft this budget," he said. "Many tips spoke about the limits to increased taxation. We agree that tax increases must be kept to a minimum as we stabilise our public finances. We have chosen not to introduce the tax measures."
Just as well. With sentiment shifting towards a tax revolt — partly as a response to state money being wasted or stolen — who knows what backlash a hike now would have provoked.
Instead, Mboweni cut personal income tax by R2.2bn, by shifting the tax brackets. And, surprisingly, he cut the corporate tax rate from 28% to 27% to make SA "more competitive".
The JSE seemed to cheer this, rising sharply initially after Mboweni began speaking. Banking shares, like Nedbank and Absa, and consumer stocks, like Shoprite, bounced, no doubt grateful for the U-turn on tax hikes.
Not that stabilising SA’s fiscus without new taxes is easy. But then, as Mboweni said, if you want an easy ride, rather go swimming.
In a subtle message to his cabinet colleagues, Mboweni said: "An incorrect notion has taken hold that government is ‘swimming in cash’. Certainly, compared to last October, we are in a better place. But our assessment … still stands: our public finances are dangerously overstretched."
The fact is, SA still needs to borrow R500bn in each of the next few years.
Opposition parties, predictably, weren’t pleased. The DA’s Geordin Hill-Lewis described it as an "extraordinary budget", saying that "what we’re seeing is more bailouts, cuts to social grants and cuts to basic services"; Patricia de Lille’s Good Party said the "uninspiring" budget "says absolutely nothing about how to reignite growth [and] create jobs".
It’s true that there was a lot that Mboweni didn’t say. But there was much he couldn’t say, since he can’t really provide any assurances.
Critically, who knows what will happen with government wages. Mboweni wants wage cuts of R303.4bn in the next few years, and the National Treasury said "any departure from this assumption in the forthcoming wage agreement will be unaffordable and compromise debt stabilisation".
The unions will fight this. And, given the ANC’s fraught politics, Mboweni may lose this fight.
If that happens, you can say goodbye to Mboweni’s aggressive targets — for example, the government’s optimism that debt will peak at 87.3% of GDP by 2023/2024.
Still, Martin Kingston, who heads lobby group Business for SA, says it’s the sort of budget that is going to boost confidence in boardrooms. But there’s a caveat: "Fundamentally, it’s dependent on whether or not the reforms the minister spoke about are going to be implemented."
Kingston stressed that business wants to be confident. But it hasn’t really found a reason to believe quite yet.
Mboweni said the right things. But no longer can credit be given in advance of actually doing what you say — there have been too many broken promises. But this fact creates a golden opportunity for the government to flip the script, and actually deliver on its promises. Now that would make investors sit up and take notice.
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