Budget 2019: 10 things you want to know

2019-02-20 14:49

This year’s budget by Finance Minister Tito Mboweni focused more on reducing spending than increasing taxes, but unfortunately Eskom still pushed our debt levels higher.

Here are the 10 things you need to know

1. The state has less money:

The government will collect R42.8 billion less in tax revenue than estimated in last year’s budget. This is the equivalent of receiving 5% less on your pay cheque every month but still having to pay for your bills, which are increasing each year. This is partly due to a weaker economy resulting in lower corporate tax and fewer bonus paid to individual taxpayers. There is also an increase in the number of outstanding VAT refunds.

2. The debt crisis in numbers:

This year the government will spend R243 billion more than it earns. This will require it to borrow R1.2 billion a day (assuming they don’t borrow on weekends). This year it will pay R209.4 billion in interest or R1 billion a weekday.

3. Downgrade likely:

In the press conference National Treasury acknowledged that a credit downgrade by Moody’s is possible. Considering that debt will reach 60% of GDP in 2023/24 and no clarity on how Eskom is to stabilized, this is not surprising. The impact is that South Africa will leave the World Government Bond Index and 38% of foreign investors holding South African bonds will need to sell. This will increase the cost of borrowing both for government and banks. The knock-on effect is that South Africans can expect higher interest rates.

4. Tax through inflation:

Despite the revenue shortfall, the budget has the lowest tax increase measures in five years. There is no increase in personal taxes, but government will collect more money by not adjusting the tax tables to accommodate for inflation. This means any salary increases to adjust for inflation will result in a higher tax bill. That will effectively cost taxpayers R12.5 billion.

5. More tax on fuel, booze and cigarettes:

The government will collect an additional R1.2 billion through indirect taxes. You will pay 29c more for petrol and 30c more for diesel with increases not only to the fuel levy, road accident fund, but also the introduction of a carbon tax on petrol and diesel at 9c and 10c per litre respectively. The only “sin” exempt from an increase in excise duty is sorghum beer. Government will expand the zero-rated VAT items at a cost to revenue of R1.1 billion.

6. No clarity on NHI tax:

Discussions about the funding of the National Health Insurance scheme are still not clear. In the last few years an amount of R4.3 billion was allocated to NHI projects. This was largely funded by below-inflation increase on medical scheme credits. This year there is a zero adjustment for medical scheme credits, which will boost revenue by R1 billion. However, this will be allocated to the general revenue rather than NHI.

7. Ministers and MPs to get no increases:

The budget announced baseline reductions of R50.3 billion of which half (R27 billion) relate to compensation. Members of Parliament and provincial legislatures and executives at public entities will not be receiving a salary increase this financial year. Older public servants will be allowed to retire early. The number of staff in diplomatic missions will be reduced.

8. Eskom bail-out plan:

What the government will save in salaries it will spend on Eskom. The power utility is to receive R23 billion a year to financial support it during its reconfiguration: A total of R69 billion over three years. Mboweni made it clear that this was to assist with debt servicing and not salaries. This is conditional on the appointment of an independent chief reorganisation officer being appointed. Note that outstanding electricity bills is R28 billion.

9. Increase in income eligibility for the employment tax incentive scheme:

About 1.1 million young people have been employed under the tax incentive scheme. From March 1 2019 employers will be able to claim the maximum value of R1000 a month for employees earning up to R4500 a month, up from R4000. The incentive tapers off to zero once the employee earns R6500 or more.

10. Social grant adjustments:

State old age pension increases to R1780 and child grants increase to R420 in April and R430 in October

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May 19 2019