BUDGET WRAP | 'Boring but responsible' - finance minister gets thumbs-up from economists

"Boring" and "responsible" were two of the words used – approvingly – by economists to describe the maiden budget tabled by Finance Minister Enoch Godongwana to Parliament on Wednesday afternoon.

Godongwana did not announce any major tax hikes – saying now was "not the time".

The minister did warn that government may be compelled to introduce tax hikes in the future if SA's struggling economic growth does not pick up.

While the state will continue to financially support Eskom, Godongwana said the power utility must cut costs and sell assets – including coal power stations - before Treasury takes over a portion of its R400 billion debt burden.

The minister was able to announce that the SA Revenue Service had brought in R182 billion more in taxes than had been predicted last year in February.

"This positive surprise has come mainly from the mining sector due to higher commodity prices."

He followed up with a warning that this improved revenue performance was not a "reflection of an improvement in the capacity of our economy".

Read Fin24's wrap of the budget here: 

Carla Rossouw, tax lead at Allan Gray, describes the budget as "responsible".

"The high cost of living, fuelled by rising inflation, significant fuel price increases and a series of interest rate hikes (which are likely set to continue) have left most South Africans feeling defeated and overwhelmed."

"Today, Finance Minister Enoch Godongwana provided some hope during his maiden budget speech by proposing no significant tax increases to the major revenue-generating categories, such as personal income tax and VAT for the 2022/23 tax year."

Rossouw said this signalled a continuity from his predecessor Tito Mboweni's 2021 budget, which also did not announce major tax hikes. 

United Democratic Movement MP Nqabayomzi Kwankwa welcomed the minister’s decision not to introduce a road and fuel levy as households were under pressure.

However, he said there was no clear plan to boost economic growth or fix ailing SOEs, and no signs of arrests for state capture.

African Christian Democratic Party MP Steve Swart says the budget was "reasonable" in its allocation of the R180 billion revenue overrun windfall.

Swart said Godongwana could have been more forthcoming with plans on how to save state-owned entities.

"The budget shows a commitment to reduced debt and is well-balanced. We welcome the fact that there is no personal income tax increase, although only stabilising the debt-to-GDP ratio to 76% in three years is concerning."

Democratic Alliance MP Dion George says that while the budget struck all the right notes, it did not do enough to give the South African economy the growth it needs, and was "overly cautious". 

"The minister certainly talks in the right direction when it comes to business. But the public service wage bill is the elephant in the room, and debt repayment costs in the medium-term are unsustainable. There is also no incentive for domestic saving," says George.

African National Congress MP and former deputy minister of finance, Sifiso Buthelezi, says the budget struck a good balance between new spending programmes and getting to grips with debt.

"We agree that the environment is constrained but the finance minister continued to spend on infrastructure, grants and business supports like the loan guarantee scheme and be responsive to the country’s needs," said Buthelezi.

The Beer Association of SA says in a statement that the sustainability of SA's craft beer brewing industry is at risk. 

"While we are pleased that the local beer industry was not faced with another above inflation increase, we are disappointed that the minister failed to address the issue of relief for our smaller craft brewers in particular," the group said in a statement. 

"With these breweries having received zero compensation from government to date despite the previous four alcohol bans forcing them to shut their doors for a total of 161 days (just over four months) between March 2020 and July 2021, they are still rebuilding their businesses and with no relief offered, as well as another increase in excise, their sustainability as a sector remains at risk."

Pieter Groenewald of the Freedom Front Plus expressed concern over how dependent South Africans are on social grants.

"We are still worried about the whole financial situation in South Africa. We are becoming a welfare state, where 46% of the people are dependent on social grants. We believe it is not sustainable for the future. The tax-base is too narrow to afford that," he said after the budget speech. 

Government debt is also a worry, he added.

"We're talking about debt of R4.3 trillion which will grow to R5.4 trillion over the medium term." This is apart from the significant servicing costs, he pointed out.

But he also noted some positive aspects to the budget. "We welcome that there is no increase in the fuel levy. That will benefit ordinary people and citizens of South Africa."

"The decrease in company tax should be a sign for companies to expand, and create more jobs in South Africa."

Ryno de Kock, Head of Financial Planning & Advice at Consult by Momentum, notes in a statement that while Godongwana did not announce major tax increases, consumers still have to be careful. 

"Rising inflation means that they will remain under pressure, and their personal budgets should take this into account."

The Automobile Association says the fact that Godongwana did not increase fuel levies is a "landmark win for consumers".

"The AA had earlier urged the Minister not to increase the two main levies on the fuel price – the General Fuel and Road Accident (RAF) levies. Currently these levies combine to add R6.11 to every litre of fuel sold in the country."

But Rowan Burger, Head of Client Strategy at Momentum Metropolitan, notes that money has to come from somewhere to plug the RAF's enormous deficit. 

"No increase to RAF levy is a grave concern. Its deficit projected to rise from R425bn to R553bn by 2024. We urgently need structural reform here." 

Read Fin24's summary of what you need to know from this year's budget.

Elna Moolman of Standard Bank SA says the budget is "probably neutral to somewhat positive for bonds and the rand".

"Investors might be pleased with deficits that are moderately smaller over the medium term than the consensus had expected, though they may still be concerned about downside risks to the growth and commodity price assumptions."

Jean du Toit, Head of Tax Technical at Tax Consulting SA, notes that among other announcements Godongwana had a positive take on the rebuilding of the SA Revenune Service. 

"490 additional staff members have been recruited and R430 million has been invested to improve SARS's ICT infrastructure," he notes. 

Chief Economist at Old Mutual Investment Group, Johann Els, says the address was "boring (that is a good thing!) and market friendly". 

"This budget means ratings have very likely troughed – I expect further positive ratings news," says Els.

"Minister Godongwana emphasised that nothing in the budget can 'replace the structural changes our economy needs'".

"He stressed that the revenue performance is not thanks to an improvement in the capacity of the economy and warned that any expenditure increase should be done in a way that does not negatively impact the deficit."

The SA Revenue Service has patted itself on the back for higher-than-projected tax revenues. 

The tax agency notes that its "deliberate and targeted tax compliance work" meant that extra income earned by mining companies made its way into state coffers.  

"At the heart of the work of SARS is building and entrenching a culture of voluntary compliance, which is intrinsic to nation building and ensuring that all taxpayers pay their fair share," it adds. "This not only strengthens our democracy but lays a firm foundation for a future we all want as a nation."  

Some early reactions to the speech are starting to trickle in. 

The National Liquor Traders Association condemns that its members were not provided with support, while taxes on alcohol were increased at rates above inflation. 

"The biggest winners of the budget speech are the illicit market and once again, legal liquor traders will bear the brunt of government’s ignorance of this important sector and ultimately condemn and pave way for the erosion of profits and job losses in the industry."

The minister also talked up plans to improve financing prospects for infrastructure through the public-private partnerships frameworks.

On Eskom, Godongwana said that while Treasury will ultimately have to take over a portion of Eskom’s debt, he wants to see the company increase efficiencies and sell assets – including coal power stations – before it does. 

Fin24's Carol Paton unpacks the minister's announcements on better-than-expected tax receipts. 

The minister is now nearing the end of his speech. Before he ends, he touches on a "fundamental restructuring of the retirement systemfor individuals" to allow for what he calls "greater preservation and partial access to funds". 

The minister says the trustees of funds will continue to make decisions on withdrawing funds.

"Consultations are proceeding following the release of a discussion paper last year and the draft legislation on these amendments will be published for comment in the middleof the year."

The minister cautions that, while VAT and other taxes have not been increased, this may change in the future. 

"We have reduced the corporate tax rate and broadened the tax base. However, let me restate my earlier caution, that if there are permanent expenditure increases in the coming years, we would have no choice but to revisit this to ensurethe fiscal deficit does not worsen."

The carbon tax rate - which the state hoped will help SA lower greenhouse emissions - is also going up. 

"The carbon tax rate will increase from R134 to R144, effective from 1 January 2022."

"The carbon fuel levy will increase by 1c to 9c per litre forpetrol, and 10c per litre for diesel, from 6 April 2022."

"The first phase of the carbon tax, with substantial allowances and electricity price neutrality, will be extended to 31 December 2025."

"However, in line with our commitments at COP26, the carbon tax rate will be progressively increased every year to reach $20 per tonne."

Excise duties on alcohol and tobacco will "unfortunately" increase by between 4.5 and 6.5 percent, says Godongwana. 

A packet of cigarettes will cost R1.03 more, while a 340 bottle of beer will cost 11c more. 

MPs chuckle as the minister notes the increases. 

The personal income tax brackets and rebates will be adjusted by 4.5 percent, says the minister.

The fuel levy will also not be increased, a line that gets the most applause yet of the day. 

"This will provide tax relief of R3.5 billion to South Africans."

Godongwana says govt teams will review how the fuel price is calculated.  He syas he had been consulting with Mineral Resources and Energy Minister Gwede Mantashe: "The intention is review the structure of the petrol price going forward – to be competitive in this economy".

"Now is not the time to increase taxes and put the recovery at risk," says the minister, to applause from some MPs. 

"This Budget includes R5.2 billion in tax relief to help support the economic recovery, provide some respite from fuel tax increases, and boost incentives for youth employment."

The minister applauds the work being done by SARS on ferreting out illegal tobacco. 

"Just yesterday, SARS conducted a search and seizure operation. This operation uncovered another consignment of illegal tobacco products, bringing the total value of illicit tobacco seized during the pandemic to over R350 million."

The minister says there South Africans must differentiate between "corruption and minor transgressions of the rules of policy prescripts that are audited as irregular expenditure".

"The National Treasury is engaging with the Auditor-General to continue to ensure transparent disclosure of minor transgressions, but outside the financial audit process."

"We must take bold steps to improve state capability and reduce thescope for procurement corruption," he says. 

The finance minister notes that 175 out of 257 municipalities are in financial distress.

"We stand ready to work with Parliament and all oversight bodies to hold municipalities accountable for delivering these services."

"At the same time, our municipalities and other institutions cannot survive if they don’t receive payment from those who consume their services."

"We urge our people and government departments to pay their municipal bills."

There will be some increases to social grants. 

*For the 2022/23 fiscal year, the old age, war veterans, disability and caredependency grants, will increase by R90 in April and a further R10 in October;

*The foster care and child support grants will increase by a once off R20 in April;

*The R350 social relief of distress grant, often called the Covid-19 grante, has been extended by 12 months. 

To boost funds for students, Godongwana says govt is allocating R32.6 billion for financial support to current bursary holders and first-year students under the National Student Financial AidScheme.

Shortfalls will be funded from within the baseline of the Department ofHigher Education.

Godongwana says the goevrnment has allocated R76 billion for job creation programmes over the medium term. 

"In this Budget an additional R18.4 billion is made available for the Presidential Employment Initiative," he says. 

"To support businesses in distress owing to the Covid-19 pandemic, a new businessbounce-back scheme will be launched, using two mechanisms which will be introduced sequentially," says the minister.

"Firstly, small business loan guarantees of R15 billion will be facilitated through participating banks and development finance institutions.

"This allows access for qualifying non-bank small and medium loan providers."

"Government will partner with loan providers by underwriting the first 20% of losses forbanks and other eligible small and medium loan providers."

Godongwana says SA has faced "more than a decade of economic stagnation".

"Only through sustained economic growth can South Africa create enough jobs to reduce poverty and inequality; enabling us to reach our goal of a better life for all."

The minister says the government will accelerate infrastructure investment, which he calls the  "backbone of a thriving economy".

The state will continue to support embattled state-owned power utility Eskom. 

"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 minister says Eskom must cut costs, sell assets and implement "operational improvements" to enhance the reliability of electricity supply

The minister says that "continual demands" on South Africa’s limited public resources from state-owned companies cannot continue.

"For this reason, SOCs need to develop and implement sustainable turnaround plans," he says. "The future of our state-owned companies is under consideration by the PresidentialState-Owned Enterprises Council."

Godongwana says the future of state entities will be informed by the "value they create and whether they can be run assustainable entities without bailouts from the fiscus".

Godongwana says the state will reduce the fiscal deficit and work to stabilise debt.

"The consolidated budget deficit is projected to narrow from 5.7 per cent of GDP in2021/22, to 4.2 per cent of GDP by 2024/25," he says. "We now expect to realise a primary fiscal surplus – where revenue exceeds noninterestexpenditure – by 2023/24."

The minister says government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term.

"This huge sum is owed to lenders domestically and around the world!I t incurs large debt-service costs; averaging R330 billion annually over the medium-term," be says.

"These costs are larger than spending on each of health, policing or basic education."

The minister says tax revenues are R182 billionhigher than estimates from last year’s Budget.

"This positive surprise has come mainly from the mining sector due to higher commodity prices."

The minister warns that improved revenue performance is not a "reflection of an improvement in the capacity of our economy."

The minister says Treasury has revised SA's 2021 GDP growth to 4.8 per cent from 5.1 per cent last year.

"This revision reflects a combination of the impact of changes in the globalenvironment, along with our own unique challenges."

"Real GDP growth of 2.1 percent is projected for 2022. Over the next three years, GDPgrowth is expected to average 1.8 percent."

The minister notes world economy is expected to grow by 4.4 per cent this year.

"This is lower thanthe 4.9 per cent we anticipated when tabling the [medium-term budget].

"The Omicron variant of the coronavirus caused many countries to impose restrictionsto manage its spread. In addition, continued imbalances in global value chains have limited the pace of theworld’s economic recovery."

The minister says the budget will narrow the budget deficit and stabilise debt.

"It also extends income and employment support to the most vulnerable, addresses service delivery shortcomings and provides tax relief." says Godongwana. 

After greeting all and sundry, Godongwana says SA's economic recovery has been "un-even" and risks "remain high".

"We must proceedwith caution."

Proceedings have started in Parliament. But before Godongwana can start speaking, the speaker first announces the names of some new MPs, who get a round of applause.