Making sense of the #Budget2019 announcements
21 February 2019
If you’re been actively monitoring conversations about this year’s National Budget Speech, you won’t be surprised to hear that some South Africans were expecting to hear more controversial announcements from the Minister of Finance, Tito Mboweni- while others are relieved to hear that things like VAT and the Personal Income Tax brackets have remained unchanged.
Many announcements were made, but what’s important and what does it all mean? We’ve put together some comments and thoughts from our in-house experts to help clarify some of the questions and confusion that you might have.
Addressing key economic issues
Craig Pheiffer, Absa Chief Investment Strategist: WIMI, says Mboweni’s National Budget (#Budget2019) is based on six fundamental principles that talk to all of the current key economic issues, namely:
- Growing the economy at a faster pace
- Increasing tax collection
- Keeping expenditure in check
- Stabilising and reducing debt
- Reconfiguring state-owned enterprises
- Managing the public sector wage bill
Plant the seeds now, reap the rewards later
Kwaku Koranteng, Head: Institutional, Absa Multi-Management, agreed that #Budget2019 tried to appease conflicting interests in a difficult fiscal and economic environment. “Since the mid-term Budget Speech, Treasury has revised economic growth projections downwards, which will have an impact on potential revenue collection, while deficits also widened slightly. The projected debt-to-GDP ratio has worsened marginally since last year,” he explained.
Pheiffer also added that the 2018/19 budget deficit of 4,3% (that widens to 4,5% next year and reduces to 4,3% and 4,0% over the following two fiscal years), is more than expected. “It’s front-loaded to reflect the Minister’s focus on planting the seeds now, so that the country can reap greater rewards over the medium to longer-term."
Improving economic growth
To further improve economic growth, which has been outlined as an important priority to the current Government, resources have been reprioritised from the Wage Bill and allocated to the President’s Infrastructure Fund. According to Wessel Lemmer, Senior Agricultural Economist, RBB SA, Absa Group, this indicates the Government’s commitment to improve economic growth and fund much-needed infrastructure development that will ultimately increase South Africa’s global competitiveness. And while the decision to not allocate salary increases to Members of Parliament and provincial legislatures as well as executives at public entities in this financial year is another step in the right direction, it remains to be seen if this will be enough to turn things around.
A win for the Average Joe
As far as the Personal Income tax brackets go, Pheiffer noted that the decision to leave them unchanged shows that Mboweni has put his money where his mouth is when he stressed that #Budget2019 was prepared with the best interests of the nation in mind. And it’s important to note that this means that households will benefit from this decision. “We all need to work together and, to this end, the Minster held back on increasing tax brackets that could’ve helped generate an additional R12.8 billion for the fiscus."
A firm approach towards SOEs
As for the much-discussed State-Owned Enterprises (SOEs), Koranteng added that Mboweni’s firm approach towards Eskom is a good sign. “The Minister didn’t commit to allowing Government to absorb this SEO’s debt. But while terms of providing loan guarantees to these entities were tightened, insufficient detail has been provided to know if these measures will be enough to address the challenges at ailing,” he explained.
There will also be an important tightening of operations at the South Africa Revenue Service (SARS), with the appointment of a new Commissioner and units focusing on corporates and illicit economy. Koranteng hopes that this will lead to improved revenue collection that will, in turn, also make an impact on the general state of the country’s economy.
The bottom line
All in all, our experts are in agreement that #Budget2019 isn’t strong enough to improve South Africa’s credit ratings. But at least we can celebrate the fact that Mboweni is walking the talk and making the tough decisions that are necessary to turn the country’s financial situation around.
Start your budget
South Africa’s budget has been done – don’t you think it’s time to start doing yours? We’ve simplified this seemingly-complicated process in our Budgeting 101 blog post and created this easily-downloadable Budget Sheet to help you get started.
If you’re not big on reading, we’ve taken Mboweni’s hour-long National Budget Speech and turned it into this four-minute video that unpacks the highlights for your viewing pleasure.
Got any questions? Comment below and we’ll get back to you with an answer.
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.