Will Budget 2020 save us from a downgrade?
Will Budget 2020 save us from a downgrade?
The 2020 Budget delivered some welcome news with income tax relief and the feared VAT increase not materialising. Success now depends on implementing the difficult cuts.
The Budget aims to promote desperately needed economic growth. This is seen in an easing of personal income tax, a plan to reduce company tax and no hike in VAT. The realisation of the need to cut the burgeoning state salary bill by R160bn over the next three years is hard for the public service employees but may help the strained fiscus. This is not a done deal and may mean a difficult battle between government and unions.
The independence of the Reserve Bank has been affirmed and improvements to the ease of doing business again promised. These efforts may bring much-needed investor confidence. However, the promise of easing the ability to do business has repeated over many years and yet we continue to slip down the world rankings. All of these measures are not only pro-growth, but may help stave off a ratings downgrade.
We are pleased that Minister Mboweni has recognised the concern that our growth forecasts are significantly lower than our global peers and well below the global economic growth average. However, the growing deficit – now at 6.8% of GDP – and the reduction in the number of taxpayers from 7.6 million last year to 7.2m will impact negatively on public services.
The emphasis on policy certainty, transparency and reducing borrowing costs is welcome. This requires a more rigorous approach to reducing waste and corruption – including cutting wasteful subsistence and travel allowances for senior public officials – rather than looking to increase revenue by hiking personal and corporate taxes. This is in line with OUTA’s recommendations to Parliament for a number of years.
The allocation of an additional R2.4bn to the NPA, SIU and the Hawks is a significant contribution to the fight against corruption, particularly when mentioned in the context of clearing cases arising from the State Capture Commission. More resources here should substantially increase the capacity of these criminal justice agencies and we hope successes here will ultimately improve the revenue collections and cut corrupt spending. Over and above accountability in government, the enabling private sector players must also be held to account. SARS has a strong role to play in this.
Along with capping the wage bill, programme spending will be cut by about R100bn, with R60bn of these savings going to fund Eskom and SAA bailouts. This is the cost of the collapse and looting of those SOEs. We need clarity on exactly how extra allocations will improve the situation, since repeated bailouts and government guarantees have not yielded tangible results. We welcome the Minister’s promise to merge and consolidate SOEs – we would like details and timelines – and the promise of a new law to stop excessive salaries in SOEs.
The victims of the SOE financial collapses are the poor and vulnerable. Human Settlements loses funding. Public transport is cut. Funds for school buildings and health services are diminished. These cuts underline the urgent need to identify and cut the waste, so funds can be directed to education, health and safety in line with the National Development Plan.
We are still waiting for the Cabinet’s decision on the future of e-tolls, but the Budget indicates an acknowledgement that motorists aren’t going to pay. Budget Review 2020 notes the need for clarity on the e-tolls and says that “[d]eclining e-toll revenue will have to be offset by other measures to repay South African National Roads Agency Limited debt”. For the past few years, Treasury has allocated R1.8bn to R1.9bn to the GFIP tariff shortfalls, which is equal to the GFIP bond repayment value. In effect, the government has come around to OUTA’s position on funding the GFIP from Treasury and its appetite to enforce e-tolls is waning, suggesting a final decision to pull the plug is not far off. The question is why this is delayed.
OUTA believes that civil society organisations, that act on behalf of citizens, should continue to make meaningful contributions to the crucial budget process. In line with this, we will make a detailed submission to Parliament on our views of Budget 2020 during the public participation phase.