Some tax breaks, some social protections like…
“Even if we face arduous and daunting challenges, as we have done in the past, we will overcome them. To do this, we must strike a critical balance between saving lives and livelihoods, while supporting inclusive growth. This budget strikes that balance,” Finance Minister Enoch Godongwana said in his prepared speech.
It is sustainability alongside social protection. But this optimistic turn comes with caveats that without fundamental structural economic reforms for economic growth, investment and jobs, the nation will struggle to reverse the trend.
“In the absence of higher economic growth that supports long-term improvements in revenue collection, any proposal to fund permanent additions to government spending requires careful consideration,” the Budget Review said in a reference. clear to the vocal call of civil society for a base. Income Grant (BIG), or income support for all people aged 18 to 59.
Speaking to reporters ahead of presenting his first budget, Godongwana said the National Treasury was looking at all the various government grants and support for community work programs to the monthly R350 Social Distress Alleviation Grant which has been extended for a further 12 months until March 2023.
“Our view is that you don’t fund ongoing programs using time-based revenue, because over time you’ll run into a problem… We’re looking at the totality (of grants and social interventions).”
For now, the government has some leeway. This is thanks to the additional 181.9 billion rand that the South African Revenue Service (Sars) collected. This is over R60 billion more than the Medium Term Fiscal Policy Statement (MTBPS) of November 2021.
“(I)n these difficult times and without compromising our ability to raise revenue, we have managed, through these tax proposals, to keep money in the pockets of South Africans and create the conditions for an investment increased in the economy,” Godongwana said. in his prepared speech.
Those extra billions eased the government’s debt headache at a time when economic growth is a little more entrenched, but still tepid at 2.1% in 2022, against forecast inflation of 4.8%.
Debt-to-gross domestic product (GDP) ratio stands at 75.1% in 2022, lower than November MTBPS forecast, while fiscal deficit improves from forecast 7.8% at 5.7%.
However, with debt totaling R5.43 trillion in 2022, debt-servicing costs remain the fastest growing item of government spending – and it exceeds budgets for health, police and basic education.
In 2022, this means paying R301.8 billion out of the overall budget of R2.16 trillion.
In other words, debt servicing costs are projected to increase by 10.7% between 2021 and 2025. In comparison, economic development spending is projected to increase by 8.5% over the same period and community development spending by 7.9%.
It’s about as stark an illustration as any difficult balance of the political and economic tightrope that Godongwana has to walk, sometimes also in ideological headwinds.
But now for the good news.
Individuals will benefit from a total tax relief of R5.2 billion by adjusting tax brackets – and some additional tax credits for medical aid – while corporation tax is reduced by one percentage point to 27%.
From April, the monthly pension of R1,890 increases by R9o, with another R10 increase in October, as does the Disability Allowance. R20 more per month increases the childcare subsidy to R480.
And the Employment Tax Incentive, or Youth Wage Subsidy, is increased to R1,500 per month for every young jobseeker a company employs.
On the jobs front, the Presidential Jobs Stimulus Package gets R18.4 billion out of the overall jobs allocation of R76 billion.
The Small Business Rebound Support is making government guaranteed loans of R15bn available, and later also equity support.
Very unusual, the fuel tax remains the same. The National Treasury has indicated in budget documentation that a review of the formula which also pays for the Road Accident Fund (RAF) is underway.
“We think it’s a good story to tell (that) we can do all these things without raising taxes,” the finance minister told reporters at the traditional pre-budget briefing.
Some headaches remain, not the least of which is Eskom – because of its roughly R400bn debt and slow unbundling. The struggling electric utility must take additional steps to cut costs, sell assets and improve operations. A reliable power supply is essential.
On the public sector pay front, until negotiations are settled, civil servants will continue to receive the monthly non-pensionable cash payment of between around R1,200 and just under R1,700, according to a recent circular.
“We need to restructure this (civil service) payroll. This is what we are aiming for,” Godongwana told reporters. It is a longer term reflection.
Meanwhile, the carbon tax on fuel is increasing – by one cent per liter from April 6, 2022, while the tax on plastic bags is increasing by three cents to 28c per plastic bag. And the health promotion tax goes up to 2.31 cents per gram of sugar.
As usual, sin taxes are rising – again. A pack of 20 cigarettes will cost R1.03 more, a 340ml can of beer will cost 11 cents; it will cost 33 cents more for a 750ml bottle of fortified wine, or in the case of sparkling wine, 76 cents.
A new vaping tax of R2.90 per milliliter will come into force in January 2023.
Amid talk of prudent fiscal policy, debt reduction and fiscal sustainability, the 2022 budget review highlights the measures taken in the government’s economic recovery plan, including the reduction unit bureaucracy within the presidency.
However, unlike previous years, the budget review quickly reveals figures or highlights Sona’s key priorities such as, for example, the fight against crime and corruption.
Only in the 956-page National Expenditure Estimates does it appear that the National Prosecuting Authority’s Special Directorate of Investigations is getting an extra R426 million over the next three years, targeting 27 cases of capture of State by fiscal year 2024/5. Allocations to the Special Investigation Unit (SIU) increase to R976.2 million in 2022 from R751.6 million in 2021.
Yet, based on an improving debt outlook, the 2022 budget is firm on its extremely pro-welfare stance. It’s a half-full message against the backdrop of 2.2 million jobs lost due to the Covid-19 lockdown which has led to 46.4% unemployment on the broad definition of including all those who are too disillusioned to even try to look for work.
Repeatedly, the budget documentation highlights that 59.5% of overall spending is on social services, or R1.3 trillion, up from 58.2% in the previous 2021 budget.
Of this R1.3 trillion social expenditure, R441.5 billion goes to learning and culture, with basic education taking the lion’s share with R282.8 billion and R46.1 billion. billion rand to the National Student Financial Assistance Scheme (NSFAS). ).
Social services receive R364 billion, all of which, except R31.9 billion for administration, goes to grants.
Health receives 259 billion rand, most of which is allocated to district health services (115-7 billion rand), but also 2.3 billion rand for Covid-19 vaccines.
Community development is allocated R236.3 billion, with human settlements, water and electrification receiving R58.7 billion. The municipal fair share is R87.3 billion to support municipal service delivery.
Economic development, including agriculture, industrialization policy such as various sectoral master plans for poultry, chicken and clothing, is allocated R227.1 billion.
Peace and security, which includes police and home affairs, receives R220.7 billion. Some R10 billion is reallocated to information and communication technology (ICT) for home and other affairs.
The devil is in the detail
Although transfers to provinces and local governments have not been cut again, the National Treasury says it will ensure that the provincial road maintenance subsidy incentives are fully based on recent road data. And changes are underway to include the School Infrastructure Backlog Grant in the School Infrastructure Grant. Not all schools in South Africa even have adequate sanitation facilities.
While local government receives an additional R4.2 billion in 2022, the R800 million Neighborhood Development Partnership Grant is linked to the President’s Jobs Initiative. In a clear sign that cities are unable to create public transport systems, the public transport network subsidy is reduced over the next three years.
Much of this was made possible as tax revenue reached R1.55 trillion, compared to the R1.37 trillion projected in the 2021 budget.
Part of this is due to Sars’ “enforcement activities” which raised an additional R5 billion, but also because the tax collector “has stepped up its work to tackle criminal and illicit activities”.
Sars’s additional tax collection has emerged as the key to fiscal space – and enabled the finance minister to repeatedly declare in his speech the government’s commitment to economic reconstruction and recovery for the long-term prosperity of South Africa, while saving lives and restoring livelihoods.
“We are turning the tide. We have the ability to change things,” Godongwana told reporters.
The proof is in the pudding. DM