Budget 2020: Never waste a good crisis

They say we must never waste a good crisis! It is during crisis that true character is revealed, character which our Nation, instilled and nurtured by its women has an abundance of.

So yes, the 2020/21 Budget will arguably be the most significant since 1994 given that South Africa’s economic growth is at its lowest and unemployment is at its highest at 29.1% and so too is inequality and social cohesion. South African’s have also become increasingly impatient as we deal with increase negative economic issues compounded by the rising debt to GDP whilst their lives are not changing for the better. Instead, the demands on the average South African to dig deeper into their pockets to help pay for crumbling SOEs and infrastructure needs has increased at a time when household income growth in the past five years has experienced a decline.

Unfortunately, Budget 2020 will not ease the pressure off ordinary South Africans as Minister Mboweni has no room to manoeuvre. GDP growth is expected to remain below 2 percent for the next three years whilst  household consumption continues to slow down driven by the economic decline, rising unemployment and tax increases.

Lower economic growth impacts on Corporate Tax and VAT collections and has resulted in sharp reductions in revenue projections, whilst fiscal pressures have mounted. The projected budget deficit would be the highest over the past 10 years, which was a result of the then global financial crisis. Under normal circumstances, the solutions needed to close the budget deficit is to shrink expenditure and increase revenues, but this is directly impacted by the shortfall in collections as seen in Budget 2019.

On the expenditure, the Finance Minister will find it difficult to make deep expenditure cuts without it impacting on the much needed service delivery. There was a consolidation of government departments after the 2019 national elections, but this was not enough to make a dent on the large wage bill, which is currently about 36% of total consolidated expenditure.

Budget 2020 is certainly done in a time of real crisis but there is low hanging fruit that will help boost economic growth.

What will help boost economic growth?

It’s not to increase VAT. VAT increase will place further tax burdens on households. An increase in VAT is growth negative as seen with the increase in 2018 from 14% to 15%. Soon after the increase in VAT, the VAT panel was constituted to zero-rate food products to ease the pain on consumers. A percentage point increase in VAT could generate about R21 billion in revenues, which is about 0.4% of GDP, however, the consumer is squeezed and the cost to households and the fiscus would too onerous.

Tax incentives must stimulate productive activity through new investments and maximise job creation, especially in the SME sector and supported by the SME fund. Special preferences could be given to young and new entrepreneurs in order to encourage and support service delivery, manufacturing, logistics, food production and digital businesses to name a few.

  •  Put together a clear plan and a public dashboard for the selling or listing or the recapatilisation of SOEs. SAA for example, should be placed in the hands of private hands that can turn the airline carrier around and keep creating new meaningful jobs in the aeronautical, logistics and engineering. The Generation business of Eskom on the other hand, should include independent power producers including across the entire energy mix, including gas power stations.
  • Right-sizing of Government departments and SOEs is crucial in encouraging efficiencies and saving much needed funds, however, this results in job losses. The existing pact between government, labour and businesses needs to play and active role in ensuring that companies are accommodating and re-training those who have lost their jobs in the public sector.
  • Stimulating SMME in local communities driving localised employment must be a priority as it directly impacts on the dependency of the social grants purse and its reliance.

So, whilst Budget 2020 is presented in a time of crisis, let us as a nation exhibit our character of resilience, will, selflessness and integrity. Government needs all of us to partner now to get us to the desired state of prosperity.    Issued by Board of Directors IWFSA