Budget 2019: With determination, we can return to plum times.

//Budget 2019: With determination, we can return to plum times.

Cape Town: Tabling a difficult budget that required him to weigh priorities against a need for fiscal consolidation, Finance Minister Tito Mboweni kicked off his speech by saying that by doing things right, the country can return to “plum” times.

A part-time farmer himself, Mboweni told the nation on Wednesday afternoon that it is time for the country to sow the seed of renewal and growth.

Quoting a bible verse from the book of Zechariah – which speaks about the prosperity of the seed, among others – he said for the seed to be prosperous, the country must first cultivate the soil.

Once the seed has been planted, Mboweni said, it must be nurtured, watered and protected from the extremes, the elements and time.

Mboweni said a few years ago, one of his predecessors handed out succulent plums to Members of Parliament to demonstrate the times of plenty in the country.

“Today, we walk into this house with an iconic South African plant, the Aloe Ferox. This is one of the best known South African plants. It has a long history of medicinal use. It is resilient, sturdy and drought resistant. It withstands the elements. We must take the bitter with the sweet. Today, I bring you a seed to prove that if we plant anew, we can return to those plum times,” he said.

Mboweni said this year’s Budget is built on six fundamental prescripts:

–       Achieving a higher rate of economic growth;

–       Increasing tax collection;

–       Reasonable, affordable expenditure;

–       Stabilising and reducing debt;

–       Reconfiguring State-owned enterprises; and

–       Managing the public sector wage bill.

“It will not be easy. There are no quick fixes. But our nation is ready for renewal. We are ready,” he said.

Mboweni said this coming year, interest expenditures will be R209.4 billion, which amounts to R1 billion per day.

He said the expenditure and tax adjustments are designed to largely counter the additional allocation for Eskom and the revenue shortfall.

“As a result, gross national debt will still stabilise at about 60% of GDP in 2023/24, broadly in line with our October forecast.

Mboweni said restoring government’s finances and fixing State-owned enterprises will take great courage, “but it can be done”.

Government’s cash holdings increased sharply

Treasury said, meanwhile, that government’s total cash holdings, which consist of deposits held at commercial banks and the Reserve Bank, stood at R235.8 billion at the end of 2017/18.

“These balances have increased sharply, mainly to prefund large foreign-currency commitments due in 2019/20.”

In 2018/19, rand cash balances increased by R21.5 billion, relative to the 2018 Budget.

“This is due to a shift in the cash flow of social grant and interest payments from March to April 2019.

“Of government’s total cash holdings for 2019/20, almost 81%, or R171.6 billion, constitutes official foreign exchange reserve deposits made with the Reserve Bank, which is available for government to use as bridging finance,” Treasury said.

Government closely monitoring contingent liabilities

Government closely monitors the status of its contingent liabilities, which are financial obligations that will only result in expenditure if a specific event occurs.

Contingent liabilities include guarantees to State-owned companies, independent power producers and public-private partnerships.

Contingent liabilities are expected to increase from R879.6 billion in 2018/19 to R1.02 trillion by 2021/22.

Some of these include the contingent liability for post-retirement, medical assistance to government employees, which is unchanged from the previous year at R69.9 billion.

Legal claims against government departments are estimated at R28.7 billion.

Obligations for the Road Accident Fund have increased by R76.9 billion to R216.1 billion in 2018/19.

Tax-free threshold for Personal Income Tax adjusted

National Treasury has announced that the tax-free threshold for personal income tax will be adjusted slightly upwards to R79 000.

“Fiscal prudence requires some tax changes. We propose additional revenue measures of R15 billion in 2019/20.

“There will be a slight upward adjustment of the tax-free threshold for personal income taxes, with no change in the current personal income tax brackets…” Mboweni said.

Treasury said the primary, secondary and tertiary rebates will be increased by 1.1%, providing a small amount of relief for inflation.

“The change in the rebate will increase the tax-free threshold from R78 150 to R79 000.

“Personal income tax brackets, however, will remain unchanged and will not be adjusted for inflation. This is expected to raise R12.8 billion in revenue, as individuals with an inflationary increase in their taxable income face a larger tax burden.”

Clearing the VAT refund backlog

Treasury said, meanwhile, that during the October 2018 medium term budget, SARS would pay out overdue VAT refunds, which rose from R30.4 billion at the beginning of the fiscal year to R41.8 billion in September 2018.

In subsequent months, SARS has been working to reduce the VAT credit book, which shows the total amount of refunds owed, by paying out an average of R22.2 billion each month.

“By end-January 2019, the credit book had decreased from R41.8 billion to R31 billion.

Clearing the VAT refund backlog, Treasury said, will reduce net revenue collections in 2018/19, and the estimated amount of refunds to pay out has increased by R8 billion compared with the 2018 MTBPS estimate.

SARS is being fixed

Despite the shortfall, Mboweni said the challenges at SARS are being addressed.

“SARS is being fixed. My thanks goes to Judge Nugent and his panel for their wise counsel,” he said.

Judge Nugent and his panel recently made their recommendations for SARS, public.

In response to this, Mboweni said a new Commissioner will be appointed in the coming weeks.

SARS is strengthening its IT team and its IT systems, and this is crucial for tax collection efforts. Information sharing agreements with allies will help fight cross-border tax evasion schemes, said Mboweni.

Spend revised upwards for the next three years

Relative to the October 2018 budget, National Treasury said the 2019 Budget’s proposed adjustments to spending plans will affect the expenditure ceiling.

He said half of these reductions come from adjustments to government’s spending on compensation.

“R12.8 billion comes from measures to reduce spending on specific programmes. Provisional allocations are made for the financial support to Eskom and the Infrastructure Fund.

Mboweni said State-owned entities (SOEs) posed very serious risks to the fiscal framework.

He said funding requests from SAA, SABC, Denel, Eskom and other financially challenged SOEs have increased, with several requesting State support just to continue operating.

“Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?”

Sin taxes, levies increase

According to the National Treasury’s 2019 Budget Review report, the adjustments will lead to an excise burden slightly above the targeted levels.

Delivering his budget, Mboweni said with a 12 cents increase, there will now be a R1.74 excise duty increase on a can of beer.

Other increases include:

  • A 750ml bottle of wine will have an excise duty of R3.15, which is 22 cents more;
  • The duty on a 750ml bottle of sparkling wine goes up by 84 cents to R10.16;
  • The duty on a bottle of whiskey will go up by R4.54 to R65.84;
  • A pack of 20 cigarettes goes up by R1.14 cents to R16.66; and
  • The excise duty on a typical cigar will go up by about 64 cents to R7.80.

There will be no change to the excise duty on sorghum beer, the Minister said.

“The targeted excise tax for tobacco products is 40 percent of the retail selling price of the most popular brand within each product category,” the report said.

“Government proposes to increase the excise duties on tobacco products by between 7.4 percent and 9 percent. Cigarette makers appear to have absorbed most of the increases last year rather than increasing prices. As a result, the excise burden for cigarettes is likely to remain slightly above the target level.”

Levies

Mboweni in his speech announced that fuel levies will increase by 29 cents per litre for petrol and 30 cents per litre for diesel.

South Africa has three main fuel taxes that apply to petrol, diesel and biodiesel: the general fuel levy, the customs and excise levy and the RAF levy. From 5 June 2019, a carbon tax of 9c/litre on petrol and 10c/litre on diesel will become effective.

“These levies fund general government expenditure, support environmental goals and finance the RAF.

Diesel refunds cannot be claimed against this tax. The general fuel levy will be increased by 15c/litre for petrol and diesel from 3 April 2019. The increase is slightly below inflation. Government also proposes to increase the RAF levy by 5c/litre from 3 April 2019,” the 2019 Budget Review reports reads.

“The Road Accident Fund levy increase is not enough to match the Fund’s R215 billion liability. We urge the Department of Transport to quickly resubmit the Road Accident Benefit Scheme Bill for Parliament’s urgent consideration. It will help stabilise fuel prices,” Mboweni said.

He added that the National Treasury will work with the Department of Trade and Industry and the Department of Economic Development to explore the introduction of an export tax on scrap metal.

Measures to trim “unsustainable” public sector wage bill by R27bn

Allowing public servants to retire early and reviewing the diplomatic missions staffing structure are some of the measures government will take to trim the public sector wage bill.

Finance Minister Tito Mboweni said these and other measures will be implemented to reduce the wage bill by R27 billion over the next three years.

“The first step is to allow older public servants, who want to do so, to retire early and gracefully.

“This will save an estimated R4.8 billion in 2019/20, R7.5 billion in 2020/21 and R8 billion in 2021/22,” he said.

Mboweni said in time, this will be complemented by limits on overtime and bonus payments as well as pay progression.

“The system of staffing our diplomatic missions is unjustified and should be reviewed urgently,” he said.

Mboweni said as a gesture of goodwill, members of Parliament and provincial legislatures and executives at public entities will not be receiving a salary increase this financial year.

“My colleague, [DPSA] Minister Ayanda Dlodlo will outline the details of the early retirement framework during the course of the week.”

Government to allow early retirement without penalties

In its Budget Review document, National Treasury said compensation accounts for more than 35% of consolidated public spending and has been a major driver of the fiscal deficit.

Treasury said spending reductions have typically fallen on goods and services, and capital investment.

This means that over time, compensation as a share of consolidated spending has increased for most departments.

Increased allocations in grants, education and health

The National Treasury will in the 2019/20 financial year set aside R567 billion for social grant payments, Finance Minister Tito Mboweni announced during the 2019 budget speech in Cape Town on Wednesday.

This, he said, was to improve the conditions of life for all South Africans, especially the poor, as the country tackles poverty and inequality.

Mboweni announced that there would be an R80 increase in old age grants, from R1 695 in 2018 to R1 780 in 2019.

Other increases are:

  • State old age (over 75): increases from R1 715 to R1 800 (5.0%)
  • War veterans: from R1 715 to R1 800 (5.0%)
  • Disability: from R1 695 to R1 780 (5.0%)
  • Foster care: from R960 to R1 000 (4.2%)
  • Care dependency: from R1 695 to R1 780 (5.0%)
  • Child support: R405 to R425 (4.9%)

According to the National Treasury’s 2019 Budget Review report, social grant coverage grows by about 2% per year.

In 2019, the report says, spending will rise from R162.6 billion in 2018/19 to R202.9 billion in 2021/22, at an average annual growth rate of 7.6%.

“Over the same period, the number of beneficiaries is expected to increase from 17.9 million to 18.6 million. By 2021/22, the old age grant will reach 4 million beneficiaries,” the report states.

By 2021, child support grant is expected to reach an estimated 13.1 million beneficiaries, the Treasury report says.

“However, in 2019/20 and 2020/21 funding decreases by R500 million each year due to legislative delays in implementing the Cabinet-approved extended child support grant for orphans who have lost both parents,” the report said.

The report adds that the spending on grant administration will grow at an average annual rate of 1.8%, from R8.4 billion in 2018/19 to R8.8 billion in 2021/22. This will include the costs of payment services provided by the South African Post Office.

“Future savings are expected as paypoints are consolidated and more recipients are paid through the National Payment System,” the report says.

Health

Mboweni said the budget was proposing a total non-interest spending over the next three years of R5.87 trillion across all sectors. Considered in this figure is the R717 billion for health services (including National Health Insurance).

“In health, we need simple, effective interventions. We need more doctors and nurses. R2.8 billion has been reprioritised to a new human resources grant and R1 billion for medical interns. R1 billion has been added to raise the wages of community health care workers to R3 500 per month,” he said.

An added R319 million is being allocated to eliminate malaria in South Africa.

“The HIV/AIDS and malaria components receive an additional R1 billion in 2021/22 mainly to fund increased antiretroviral uptake, while the community outreach component receives an additional R1 billion to implement the minimum wage for community health workers in provinces. In line with the health sector’s ambition to eliminate malaria by 2023/24, the malaria component is allocated R318.8 million over the MTEF period,” the report states.

A further R30 million is allocated in 2020/21 and 2021/22 to co-finance a regional malaria prevention project in Mozambique.

An additional R1.4 billion is allocated to the health facility revitalisation component of the NHI indirect grant to construct the new Limpopo Academic Hospital in Polokwane over the next three years.

Some of this funding will improve existing tertiary hospitals in Limpopo, the report said.

According to the 2019 Budget Review Report, spending in health will annually grow by an average of 7% over the medium term.

Education

In an effort to improve the education system, government will in the upcoming financial year allocate over R30 billion to build new schools and maintain schooling infrastructure.

“An additional R2.8 billion is added to the School Infrastructure Backlogs grant to replace pit latrines at over 2 400 schools. But to make certain these schools are effective centres of learning will also require parents to be a visible and constructive part in the governance of schools,” the Minister said.

This grant will also replace 147 inappropriate and unsafe schools, and provide water to 352 schools over the MTEF period.

“An amount of R19 billion is provided for learner and teacher support material, and R3.9 billion is allocated to fund 38 000 Funza Lushaka bursaries for prospective teachers in priority subject areas such as mathematics, science and technology.

“About 9 million learners at over 20 000 schools will receive daily meals through the national school nutrition programme grant, which is allocated R23 billion over the MTEF period,” the 2019 Budget Review report said.

Subsidised education and training for the poor, he said, is government’s flagship higher education intervention.

“Over the medium term government will spend R111.2 billion to ensure that 2.8 million deserving students from poor and working class families obtain their qualifications at universities and TVET colleges,” Mboweni said.

Government last year rolled out higher education and training bursaries for students from poor and working-class families. According to the report, spending on these bursaries grows at an annual average rate of 13.9% over the medium term.

Government will allocate R33.3 billion to the National Student Financial Aid Scheme in the 2019/20 financial, a substantial increase from the R22.8 set aside in the 2018/19 financial year.

“Bursary spending is expected to rise from R27.1 billion in 2018/19 to R40 billion in 2021/22. This will cover over 1.3 million undergraduate students at universities and over 1.5 million students at technical vocational education and training colleges,” said the Treasury.

Growth revised down to 1.5% in 2019 

National Treasury has revised down the South African economy’s growth to 1.5% in 2019.

In the 2019 Budget Review document on Wednesday, Treasury said Gross Domestic Product (GDP) has been revised down since the Medium Term Budget Policy Statement (MTBPS) tabled in October 2018.

The document attributed the drop in forecast from the 1.7% tabled at the MTBPS to 1.5% – to a fragile recovery in employment and investment, and a less supportive global trade environment.

This as South Africa’s GDP growth slowed from 1.3% in 2017 to an estimated 0.7% in 2018.

The 2019 Budget revisions take into account weaker investment outcomes in 2018, a more fragile recovery in household income and slower export demand than expected due to moderating global growth.

However all is not lost with positive signs that the economy has begun to gain lost ground.

“The policy inertia and uncertainty that have constrained investment and confidence have begun to lift. The reconfiguration of Eskom is a major step in the broad reform of state owned companies. Several commissions are probing allegations of widespread corruption in the public and private sectors.”

This also went alongside President Cyril Ramaphosa’s investment drive announced last year that yielded pledges of R300 billion in investment.

Meanwhile, the Consumer Price Index (CPI) is expected to reach 5.2% in 2019 in response to rising food inflation associated with higher fuel and agricultural input prices. Electricity inflation is also expected to increase.