BUDGET WRAP _ Treasury proposes major wage cut to rein in deficit

BUDGET WRAP | Treasury proposes major wage cut to rein in deficit

The finance minister proposed a three-year R160 billion cut to the public sector wage bill, while not announcing any major tax changes.

18:52
Finance Minister Tito Mboweni presented the 2020 Budget in an environment of low economic growth, a rising budget deficit, record-high unemployment and depressed business confidence.

"We won't get everything that we need," he told reporters, saying SA was in a difficult fiscal position.  But he denied he was tabling an "austerity" budget, saying he was rather 'cleaning house'.

The Budget proposes a R160 billion cut to the state's wage bill over three years to rein in SA's rising deficit, which has angered labour unions, including ANC ally Cosatu.

There will be no significant tax increases in 2020/21 apart from expected hikes in fuel and Road Accident Fund levies. And despite speculation by some pundits, VAT will not increase.

"In this difficult economic situation, it would be foolhardy to introduce a [VAT] hike," said Mboweni.
Budget 2020 in a nutshell | No major tax changes and ambitious proposal to cut state wage bill

18:06
The Automobile Association (AA):

While we welcomee the decision not to increase the Value Added Tax rate, we are dismayed at the increases to the General Fuel and Road Accident Fund levies.

Minister Mboweni announced a combined 25 cents increase to the two main fuel levies: 16 cents will be added to the General Fuel Levy bringing it to R3.63 on every litre of fuel, and nine cents will be added to the Road Accident Fund levy bringing it to R2.07 on every litre of fuel.

This means citizens will pay R5.70 towards these two taxes alone, or around 35% to 40% on every litre of fuel.

We acknowledge that revenue must be collected towards the fiscus, and the difficult decisions the Minister had to make in preparing this Budget.

However, as we pointed earlier, the increases to the fuel levies will hurt the poorest of the poor hardest, and will make transport costs that much more expensive for many who rely on transport daily to earn a living.

Another area of concern for the AA is the reduction in spending on transport, particularly public transport spending which will decrease by R13.2 billion over the next three years.

17:52
David Seinker, founder and CEO of The Business Exchange:

Following the recent announcement of funding and business support to 1000 young entrepreneurs in the next 100 days, through the National Youth Development Agency and the Department of Small Business Development by the President at the State of the Nation Address, it is encouraging to see that Minister Mboweni's latest budget plans and allocations will further assist SMEs.

The desire by government to want to improve the preferential small business tax regime, the VAT registration threshold, and the turnover tax shows the SME sector that Government is noticing the importance of the secor and that it is is serious about its prediction of having the SME sector create 90% of new jobs by 2030.

When it comes to the case of doing business in South Africa, it is encouraging to see that the government is looking to reduce the amount of time spent on red tape by creating the BIZPortal, which aims to provide a streamlined way to register a new business with the CIPC, SARS, the UIF and the Compensation Fund, all in a single day.

17:50
Andrew Wellsted, director at CMS RM Partners:

You can knock me over with a feather. I wasn't sure I would be amazed in my life again, but no tax increase, the effective end to exchange controls?

A budget speech that actually dealt with the harsh realities facing us without resorting to fanciful schemes and pie in the sky proposals.

Well done Minister Mboweni, you have given us realistic hope that government is getting down to the nitty gritty.

17:40
Siphamandla Mkhwanazi, senior FNB economist:

The budget highlighted that chronically poor economic growth continues to put pressure on tax revenue collection.

While significant cuts were made to government's non-interest expenditure, the decision to not raise additional revenue from tax proposals over fiscal year 2020/21 left the budget deficit largely unchanged.

17:33
Andre Kriel, general secretary of the COSATU-affiliated Southern African Clothing and Textile Workers' Union (SACTWU):

The Minister has indicated that procurement reforms will be undertaken to achieve value for money and maximise the quality and quantity of services, and that Cabinet has approved the publication of the Public Procurement Bill.

SACTWU has been waiting for this Bill for several years and has been frustrated by its delay. Public procurement, particularly the procurement of locally made goods, is one of the State's key tools to promote local industrialisation and job creation.

Yet at this point we still see too much leakage where imported products flow into State supply chains despite these products being designated for localisation and local content. SACTWU wants to see much stricter mechanisms in place to ensure that procuring authorities fulfil their obligations towards localisation and grow upstream industries and jobs.

We also note the R18.5bn allocated for the re-imagined industrial strategy. Given the importance of industrialisation for jobs and a future sustainable economy, we would have hoped for a greater a much larger allocation.

17:28
Enver Duminy, CEO Cape Town Tourism:

In this speech, Minister Mboweni announced that government will be engaging with the tourism industry on formalising the tourism levy, which goes toward promoting South Africa as a destination of choice across the world.

Once the tourism levy is finalised, Cape Town Tourism and other South African destination marketing organisations will no doubt experience the benefits of additional revenue that will be used to market Cape Town and South Africa more generally to the wider world.

Despite concerns to the contrary, it certainly seems like this Budget Speech has recognised that focusing on job-creating sectors like tourism is key. We look forward to these engagements with government.

17:23
Francois Viviers of Capitec:

The Budget Speech saw Finance Minister Tito Mboweni deliver the address economists were not quite anticipating. VAT and personal income tax have remained the same while the price of fuel went up by 25 cents per litre.

Now, more than ever, savvy South Africans can use this momentum along with their legendary ingenuity and can-do attitudes to take control of their money and save where they can.

It's about making simple changes that can have an immediate effect, helping you to live better. We also welcome the annual tax free savings account limit contribution by the minister this year, which means more money in the pockets of South Africans.

17:19
Kenosi Magosha, Head of Client Solutions at Sanlam Savings:

The minister has taken the right moves to spare household pockets in the interests of growing the economy through household consumption. The minister has taken heart of that which impact ordinary people such as education, employment, home ownership, health and electricity and has directed focus and expenditure to these areas.

All in all, I believe South Africans should welcome the budget and what it means not only for them, but for the future and the growth needed in our economy, particularly in the context of support given for the emergence of new businesses.

17:17
Reza Hendrickse, portfolio manager at PPS Investments:

It is sobering that despite this year's positive budget interventions, the current 65% debt to GDP level is still projected to exceed 70% by 2023, which remains on the path towards unsustainable levels.

Even with the positivity on the surface of this year's budget, the reality is that we may still only be tinkering at the margin if we consider the current debt trajectory. It is a close call as to whether Moody's will once again give us the benefit of the doubt.

17:12
Jerry Mabena, CEO of Thebe Tourism Group:

This year's Budget speech demonstrates the government's intentions to bolster growth in the small businesses sector. It is, therefore, in everyone's interest that such businesses in tourism, and of course those emerging in agriculture, are given special attention, especially in rural South Africa.

This has the potential to spur much needed immediate and sustainable growth that'll contribute to job creation in real terms.

16:54
Trade union federation Cosatu has labelled the 2020 Budget as "provocative," saying that instead of a clear diagnosis of the problems facing SA, National Treasury attempted to "dump the bill for industrial-scale looting on public servants".

Cosatu said that the "feeble and inflammatory budget" contained a clear message to workers: "The battle lines are drawn and the attempts to shift the burden of the crisis to them is in full swing".
Read more here

16:47
John Jack, CEO of Galetti Corporate Real Estate:

The 2020 Budget speech doesn't have a significant impact on the commercial property sector. One interesting take out is Minister Tito Mboweni's comment on the high rentals being paid for government buildings, an area that would like to achieve a reduction in government expenditure.

These buildings are largely held by private landlords and as a result of government only being able to commit to short terms leases the rentals are significantly higher than they should be.

Had government appointed an advisor to create an implement strategy with respect to their portfolios they could certainly find the savings in expenditure they are looking for. This trend has been noted with larger private companies and should be replicated by government.

16:37
AgriSA:

Aspects of relevance to agriculture include R495.1 million to improve compliance with biosecurity and support exports. Further allocations include R500 million, reprioritised over the medium term, to finalise land claims and R500 million (provisional) for disaster management to respond to the impact of recent floods and the ongoing drought.

Whilst the fiscus is under severe strain, we hoped to see more support towards agriculture. Spending on agriculture, rural development and land reform remains marginal. Agri SA has maintains that the agricultural sector is the key to unlocking economic growth in South Africa.

16:24
South Africa will use money from the sale of broadband spectrum and mining royalties to establish a R30-billion sovereign wealth fund, Finance Minister Tito Mboweni has said.

16:18
Lukman Otunuga, senior research analyst at FXTM:

A key takeaway from speech was Mboweni's confidence that the 2020 budget will not warrant a Moody's downgrade in March.

This sense of hope over South Africa avoiding a credit downgrade has re-energised the rand Wednesday afternoon, with the local currency appreciating roughly 0.7% against the US dollar and G10 majors.

A strengthening rand could send the currency pair towards 15.00 in the near term. Given how Coronavirus fears and global growth concerns continue to fuel risk aversion, it is likely the rand's upside will face multiple obstacles down the road.

16:13
David Maynier, Western Cape Minister of Finance and Economic Opportunities:

Minister of Finance Tito Mboweni has lost control of our public finances and provinces will have to absorb significant budget cuts over the medium term to bail out zombie state-owned enterprises, which risks compromising service delivery in provinces like the Western Cape.

The fact is that provinces will have to absorb a R7.3 billion reduction in equitable share, a R18 billion reduction in conditional grants and part of the proposed R160.2 billion reduction in the public sector wage bill, over the medium term between 2020/21 and 2022/23.

However, the full horror of national government's mismanagement of our public finances is reflected in the fact that, despite imposing significant budget cuts on provinces, national debt still spirals out of control over the medium term to a terrifying R4.38 trillion, or 71.6% of GDP, in 2022/23.

16:10
Bianca Botes, treasury partner at Peregrine Treasury Solutions: The rand gained 0.5% as Finance Minister Tito Mboweni kicked off his Budget speech with mention of tax cuts to the tune of R14bn. It was a massive surprise as market had expected hikes.

However, this knee-jerk reaction was offset as the speech continued and the currency was trading back at R15.18/$, bringing the gain to only 0.2% for the day.

South Africa's fiscal situation remains dire, however, as the deficit widens to its highest level in 18 years while the debt-to-GDP ratio is set to rise to 71%. While government is planning to slash the wage bill by R156bn over next three years, which will go a long way to ensure fiscal sustainability, the actual ability to effect this remains to be seen.

16:03
Initial reaction to Finance Minister Tito Mboweni's Budget 2020 address has stated to trickle in. Barry Knoetze, an associate director at PwC, says that, given the worsening economic realities still facing the minister of finance this year, tax relief was a "pleasant surprise".

The minister provided 5.2% adjustments to the individual tax brackets and rebates, resulting in real personal income tax relief for the already stretched individual taxpayers, said Knoetze.

"It was widely expected that the medical tax credit available to taxpayers who are members of medical aid schemes would not be increased, however, it has in fact been increased nominally from R310 to R319 per month for each of the first 2 dependents and from R209 to R215 per month for every subsequent dependent.

As regards the much talked about taxing of foreign remuneration that comes into effect on March 1, 2020, the proposed exemption will be increased from R1 million to R1.25 million.

Mboweni did not increase VAT, saying that in the "difficult economic situation" SA finds itself, it would be "foolhardy to introduce a hike".
Use this calculator to see how much you will pay

15:56ShareIcon
Andrew Bahlmann, CEO of Deal Leaders Africa, specialists in selling private businesses: It was unfortunate that the minister's remedies were merely small steps, rather than the large strides that are needed to help SA's sluggish business sector to flourish.

It was a cautiously positive budget, rather than the stimulatory one that I had been hoping for. Although there was no corporate tax relief, Mboweni announced steps to broaden the corporate tax base, which will be used to reduce the corporate tax rate in the near future to help our businesses grow.

Growing the tax base is absolutely critical to enable government to raise funds to cut debt. I had hoped for an announcement on easing visa restrictions on highly skilled immigrants as one of the needed incentives to stimulate business activity.

15:46ShareIcon
Asanda Gcoyi, CEO of the Vapour Products Association of South Africa (VPASA): The moratorium on excise for electronic vapour products (EVP) until 2021 will allow the industry a footing to establish itself as a contributor to the industrial strategy as outlined by the Minister.

We are still concerned that the proposed combined legislation of tobacco and EVP will present a hindrance to the growth and opportunities the EVP industry is able to contribute to South Africa's fiscus, and hope to engage the government on this going forward.

15:42
Clifford Oosthuizen, MD of Westbrook: We welcome the positive news from the Minister of lifting transfer fees on properties valued at under R1 million.

We hope this will reignite the property markets in Gauteng and the Western Cape which have flagged in comparison with areas that have maintained robust sales, such as the Eastern Cape.

We’re also pleased to see a reduction in personal income tax, which would help to make bonds more affordable, and thereby further spur the property market.

15:37
The South African wine industry acknowledges the greater understanding from government with the announcement of the latest excise duties during the 2020 Budget Speech.

The Minister of Finance, Tito Mboweni, announced excise duty increases of 4.4% on natural wine, 6% on sparkling wine and 4.4% on brandy on 26 February 2020.

"The wine industry had to absorb higher than inflation hikes in excise tax over the past few years despite the fact that the targets set by Treasury in 2012 were already reached," comments Rico Basson, MD of the wine industry body Vinpro. "The inflationary increases show an understanding from government of some of the challenges facing the wine industry. Our voice was heard."

Although the average wine grape producer's financial viability is looking up following a long downward cycle, nearly one third still operate at a loss. This, while government earns more from the wine industry than producers themselves. In 2018 wine producers earned R6 298 million, compared to R7 404 million earned by government through VAT and excise on wine sold locally.

15:29
You’ll soon pay 25c more tax per litre of fuel – here’s how fuel tax has increased from 2008

15:10
There'll be some tax relief and no hike in VAT, social grants will increase in line with inflation and the public sector wage bill takes centre stage...

Here is what you need to know about Budget 2020

15:06
You'll be paying less income tax - use this calculator to see how much
Get it here

15:05
Here are the biggest bombshells in the Budget – including taxpayers getting R2 billion in tax relief
Read more here

15:04
There’s a plan for etolls, but Treasury says it can’t release it.
Read more here

14:55
You’ll soon pay 13c more for every plastic bag – with proposals to tax all single-use plastic and straws.
Read more here

14:53
Mboweni: Less than two years before winning the World Cup, the Springboks lost 57-nil to the All Blacks. Miss Universe did not win her first attempt at Miss South Africa.Winning takes patience, prudence and perseverance. As Saint Paul tells us we must run in such a way that we may win.

14:52
Mboweni: We will shortly appoint an independent panel of experts to review practices in the auditing profession. The country’s money laundering system is currently undergoing a peer review, which will help strengthen the fight against illegitimate and illegal flows.

The South African Reserve Bank will in future play a more integral part in this fight.The Financial Sector Conduct Authority has repositioned itself as a market conduct regulator, and we will shortly appoint a new Commissioner.

14:50
Mboweni: The O.R. Tambo aerotropolis in Ekurhuleni is at an advanced stage of implementation and King Shaka airport in eThekwini is progressing in that direction.

Cape Town shall join them soon. Meanwhile Lanseria has been identified as a potential smart city.

14:49
Local government is allocated R426 billion from nationally-raised funds over the MTEF.

14:48
In a short statement in its Budget Review, Treasury said it was conducting a feasibility study for the fund, saying that a possible source of funds was proceeds from the allocation of spectrum and the "sale of non-core assets".

It added that a fiscal rule that saves fiscal surpluses in the fund could help manage volatile revue

14:48
Mboweni: We are focused on re-establishing institutional integrity and fighting criminal activity. Just this past week two individuals were convicted for up to 168 years’ imprisonment for tax fraud.

14:46
Mboweni announces the formation of the South African Sovereign Wealth Fund with a target capital amount of about R30 billion, which converts to about US$2 billion or so.

14:45
Mboweni: We now have preferred options for the establishment of a bank are now ready.

The architecture will be that of a retail bank operating on commercial principles. The state bank will be subject to the Banks Act, and will have an appropriate capital structure and performance parameters on investments and loan impairments. It will be regulated by the Prudential Authority on its own merits.

14:44
The NPA, Special Investigating Unit and Directorate for Priority Crime Investigation get an additional R2.4 billion in this Budget.

This will enable the appointment of approximately 800 investigators and 277 prosecutors who will assist with, among other things, the clearing the backlog of cases such as those emanating from the Zondo commission.

Mboweni: The disruptive actions of those who storm construction sites or mines harm growth and lead to job losses. Communities should expose such people to allow Ministers Cele and Lamola to ensure that the law takes its course. I hope all South Africans join me in condemning this.

Latest Articles

Investing in Zimbabwe? Private equity investor shares his perspective

09/18/2020

Spear Capital has invested in Metro Wholesalers, a groceries and hardware wholesaler in Zimbabwe. In 2017 there was new hope for the economy of Zimbabwe with a change in leadership. Last year, the Zimbabwe dollar was once again introduced as the official currency, but according to some reports has already lost 98% of its value on the…

Read More

Online grocery shopping skyrockets amid Covid-19 pandemic

09/18/2020

  Cape Town – More and more locals are turning to online shopping in hopes to protect their families from the Covid-19 pandemic and local e-retailers are laughing all the way to the bank. In a bid to cater to a previously overlooked target market local online retailers have become bold in their demand for…

Read More

Investing in Zimbabwe? Private equity investor shares his perspective

09/18/2020

Spear Capital has invested in Metro Wholesalers, a groceries and hardware wholesaler in Zimbabwe. In 2017 there was new hope for the economy of Zimbabwe with a change in leadership. Last year, the Zimbabwe dollar was once again introduced as the official currency, but according to some reports has already lost 98% of its value on the…

Read More

Investing in Zimbabwe? Private equity investor shares his perspective

09/18/2020

Spear Capital has invested in Metro Wholesalers, a groceries and hardware wholesaler in Zimbabwe. In 2017 there was new hope for the economy of Zimbabwe with a change in leadership. Last year, the Zimbabwe dollar was once again introduced as the official currency, but according to some reports has already lost 98% of its value on the…

Read More

Online grocery shopping skyrockets amid Covid-19 pandemic

09/18/2020

  Cape Town – More and more locals are turning to online shopping in hopes to protect their families from the Covid-19 pandemic and local e-retailers are laughing all the way to the bank. In a bid to cater to a previously overlooked target market local online retailers have become bold in their demand for…

Read More

Investing in Zimbabwe? Private equity investor shares his perspective

09/18/2020

Spear Capital has invested in Metro Wholesalers, a groceries and hardware wholesaler in Zimbabwe. In 2017 there was new hope for the economy of Zimbabwe with a change in leadership. Last year, the Zimbabwe dollar was once again introduced as the official currency, but according to some reports has already lost 98% of its value on the…

Read More

Will COVID-19 kill off Sandton and other swish business hubs?

09/16/2020

  When Covid-19 hit there was no doubt that the impact on SA would be huge. For the business community and its leadership, centred in the country’s economic powerhouse, Johannesburg, there were major concerns about the way in which the city could be affected. Now that the country has passed its initial coronavirus peak, the…

Read More