Budget 2019 Calls for Renewal and Growth

National Treasury

The finance minister, Tito Mboweni, in delivering his maiden budget speech in Parliament, called on South Africa to “sow the seed of renewal and growth”.

However, in order for the seed to be prosperous, the minister cautioned that we must first cultivate the soil.

“Once we have planted the seed, we must nurture it, water it, and protect it from the extremes, the elements and time. Despite our best efforts, sometimes, ravages and risks such as pests or rot could attack our green shoots, but we must persevere; we must prune and pluck away at the rot, until there is growth. This we must do as a collective.”

The minister warned that if we abandon our fields, the seeds we plant will wither.

“It will not be easy. There are no quick fixes. But our nation is ready for renewal. We are ready to plant the seeds of our future.”

According to the minister, Budget 2019 is built on six prescripts:

• Achieving a higher rate of economic growth.
• Increasing tax collection.
• Reasonable, affordable expenditure.
• Stabilising and reducing debt.
• Reconfiguring state-owned enterprises.
• Managing the public sector wage bill.

Highlights of the Budget include taking tough steps to fix the fiscal position and state-owned enterprises, focus on education with particular emphasis on early childhood development and supporting higher education, allocating money for housing, land reform and title deeds, support for Eskom during its reconfiguration and reprioritizing resources towards the Infrastructure Fund.

The minister reminded members of parliament that during the Medium Term Budget Policy Statement in October 2018, he had quoted from the Tale of Two Cities by Charles Dickens.

He pointed out that, in Budget 2019, a quote from Oliver Twist was probably more appropriate.

“In short, ‘Please Sir, may I have some more.’”

The minister asserted that state-owned enterprises pose serious risks to the fiscal framework and he raised issues around their sustainability going forward.

“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?”

FISCAL POLICY

Tax revenue has been revised down by R15.4 billion from the medium term budget estimate in October 2018.

According to treasury, approximately half of the increase in the shortfall is due to higher than expected VAT refunds.

Revenues of R1.58 trillion and spending of R1.83 trillion are projected for 2019/20.

The 2019 Budget calls for large-scale spending reprioritization and tax measures to narrow the budget deficit from 4.5% of GDP in 2019/20 to 4% by 2021/22.

Over the medium term, additions to spending amount to R75.3 billion, consisting mainly of transfers to support the reconfiguration of Eskom.

Baseline spending will be reduced by R50.3 billion over the medium term.

Tax measures raise an additional R15 billion in 2019/20 and R10 billion in 2020/21.

The tax-free threshold for personal income taxes will be adjusted upwards.

Gross national debt is projected to stabilise at 60.2% of GDP in 2023/24.

Net debt is expected to reach R2.52 trillion in 2018/19, or 49.9 per cent of GDP, increasing to R3.47 trillion or 55.5 per cent of GDP by 2021/22.

Debt-service costs are higher than the 2018 Budget estimates by R2.1 billion in the current year, R4.5 billion in 2019/20 and R10.2 billion in 2020/21.

The expenditure ceiling has been raised by R14 billion in 2019/20, R1.3 billion in 2020/21 and R732 million in 2021/22.

The contingency reserve will be increased by R6 billion in 2019/20 to cover the risk of additional fiscal support for smaller state-owned companies.

National and provincial compensation budgets for public servants will be reduced by R27 billion over the next three years.

Early retirement will be offered thereby saving an estimated R4.8 billion in 2019/20, R7.5 billion in 2020/21 and R8 billion in 2021/22.

TAX PROPOSALS

Total tax collections for 2018/19 are estimated to be R1.3 trillion.

The projected revenue shortfall is now R42.8 billion compared with the 2018 budget estimate.

According to treasury, the 2019 budget tax proposals are designed to minimize the negative impact on growth.

The main tax proposals for 2019/20 are:

• Increasing the tax-free threshold for personal income taxes from R78 150 to R79 000. No changes will be made to personal income tax brackets.
• Increasing the fuel levy by 29c/litre, consisting of a 15c/litre increase in the general fuel levy, a 5c/litre increase in the Road Accident Fund (RAF) levy and the introduction of a carbon tax on fuel of 9c/litre.
• Increasing excise duties on alcohol and tobacco products by between 7.4 per cent and 9 per cent.
• Increasing the eligible income bands for the employment tax incentive.

The 2019 Budget proposals will not increase tax rates in any category. Instead, collections will be increased by not adjusting for inflation.

Excise duties on alcohol and tobacco will be increased as follows:

• The excise duty on a can of beer goes up by 12 cents to R1.74.
• 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.
• The excise duty on a typical cigar will go up by about 64 cents to R7.80.
• The excise duty on sorghum beer will remain unchanged.
• Fuel levies will increase by 29 cents per litre for petrol and 30 cents per litre for diesel.

The health promotion levy will increase to 2.21 cents per gram in excess of 4 grams of sugar per 100ml from 1 April 2019.

SPENDING PLANS

Total government spending over the medium term is expected to be R5.87 trillion with budgets amounting to R1.83 trillion in 2019/20, R1.95 trillion in 2020/21 and R2.09 trillion in 2021/22.

The majority of spending is allocated to learning and culture, social development, health and community development.

The largest allocations are R1.2 trillion for learning and culture, R717 billion for health services (including National Health Insurance) and nearly R900 billion for social development.

Salaries remain the largest category of spending averaging 34.4% of allocated spending over the medium term.

The most significant change to the medium-term allocations involves Eskom.

R23 billion per annum is set aside over the next three years to reconfigure Eskom into three separate entities – generation, transmission and distribution.

The minister made it clear that government was not taking on Eskom’s debt.

The fiscal support is conditional on the appointment of an independent Chief Reorganisation Officer to deliver on the recommendations of the Presidential Task Team.

Government has also allocated R19.8 billion for industrial business incentives, of which R600 million has gone to the clothing and textile competitiveness programme.

The allocation to the Jobs Fund will rise over the next three years to R1.1 billion.

R481.6 million is allocated to the Small Enterprise Development Agency to expand the small business incubation programme.

As regards land reform, R1.8 billion is allocated for the implementation of 262 priority land-reform projects over the next three years. R3.7 billion is set aside to assist emerging farmers seeking to acquire land to farm.

In the realm of education, approximately R30 billion is allocated 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.

R111.2 billion will be spent over the medium term to ensure that 2.8 million deserving students from poor and working class families obtain their qualifications at universities and TVET colleges.

In 2019, social grants will increase as follows:

• R80 increase for old age, disability, war veterans and care dependency grants.
• R40 increase for the foster care grant to R1 000.
• The child support grant will increase to R420 in April and to R430 in October.

To boost the health sector, 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 R3500 per month.

Two new conditional grants for informal settlements upgrading totaling R14.7 billion will be introduced over the two outer years.

The South African National Roads Agency is allocated an additional R3.5 billion over the next 3 years to improve non-toll roads.

ROAD AHEAD

The finance minister declared that the guarantee rules for SOEs will be tightened.

“If a state-owned enterprise applies for a government guarantee for operational purposes, it will be required to appoint a CRO in concurrence with the National Treasury and its bondholders.”

The CRO will undertake a full operational and financial review.

The minister also announced that cabinet is considering a proposal to end the issuing of guarantees for operational purposes.

Treasury, in conjunction with the trade and industry and economic development departments, will explore the introduction of an export tax on scrap metal.

As regards data costs, a policy direction to ICASA for the licensing of spectrum will soon be issued.

Treasury and the justice and constitutional development department will work swiftly to support the setting up of the new Investigating Directorate in the NPA.

Mention was also made of the Public Audit Excess Fee Bill tabled in parliament that will strengthen the Auditor General’s role in municipalities.

The Infrastructure Fund was described as a central pillar of the budget and reprioritization.

“It will accelerate R526 billion worth of on-budget projects by bringing in the private sector and development finance institutions.”

Government intends to publish draft legislation on a gambling tax for public comment during 2019.

South Africa will also review its oil and gas tax regimes in 2019.

The use of electronic cigarettes and tobacco heating products has increased in recent years and government plans to start taxing these products.

A Draft Environmental Fiscal Reform Policy Paper will be released in 2019. It will outline options to reform existing environmental taxes to broaden their coverage and strengthen price signals.

Government will also investigate a tax on “single-use” plastics including straws, caps, beverage cups and lids, and containers to curb their use and encourage recycling. It will also review the biodiversity tax incentive.

The minister also announced that a new South African Revenue Service commissioner will be appointed in the next few weeks.

The SARS IT team and IT systems will also be strengthened to support tax collection efforts.

Sabinet Cape Town Office