2020 Budget

 

Well, what a surprise!  We, and most investment managers and economists that we had consulted with were expecting increased top rate taxes, increased CGT and perhaps even an increase in VAT.

 

The Minister instead held the level of income tax by increasing the tax bracket thresholds by about 5% to compensate for inflation. The increases in sin taxes, the fuel levy and carbon taxes were all modest in the circumstances.

 

So how will he balance the books this year? He won’t be able to balance the books, and the deficit is expected to increase from a planned 6.3% to 6.8%.

 

 

He has taken the politically challenging step of undertaking to reduce the public sector wage bill by R160 billion over a period of 3 years. This is significant, as the tax collection shortfall this past year was R63 billion, 40% of which was individual tax, and the balance, company tax and VAT.

 

How will this be done? Will government cut numbers, limit salary increases, or both. He provided no detail, so it looks like this is an intent, rather than a plan of action. He did talk about adjustments to pay progression and reduced staff benefits such as subsistence allowances and using economy class air travel, but stronger measures will be needed.  At least he has recognised and acknowledged that government is stuck between a rock and a hard place.

 

There are 10 million people unemployed, and little optimism, which is necessary for further investment. An increase in confidence will encourage businesses to invest and consumers to spend. This should result in employment growth, which has the potential of breathing life into the economy and starting us on a virtual circle of improvement.

 

They are also looking at ways of reducing company tax from the current 28%.

 

The latest opinions are that Moody’s may postpone their decision on whether to downgrade or not, from end March, to November.

 

We wish Tito and his cabinet colleagues great success!