On Wednesday, 24 June 2020, Minister of Finance, Tito Mboweni, addressed parliament to announce the 2020 Emergency Budget Speech. While he starts off pointing out the ways in which South Africa has adjusted to the new world order, he also states, “We remain deeply concerned about the path of the virus”, a statement confirmed by the look on his face.
Even so, he continues with his signature comparison of South Africans to the Aloe Ferox:
“As the wise farmer will tell you, when the tempest is raging you must protect your plants from damage. Our Aloe Ferox, like our people, is protected. Mr President, you are the wise farmer, caring for this Aloe Ferox”.
Mboweni noted that a second adjustment budget will be tabled in October, together with the Medium-Term Budget Policy Statement.
The purpose of the Supplementary Budget Speech 2020:
Mboweni lists some of South Africa’s strengths:
Our weakness, however, is debt. Minister Mboweni stated that for every rand that is paid in tax, 21c accounts for interest on debt that has been accumulated in the past. With this in mind, the objective is to reduce debt in the future.
2020 Economic Adjustments
In the February 2020 budget speech, Mboweni predicted that the global economy would expand by 3.3%, but as a result of Covid-19, there will be a global contraction of 5.2% instead. The gloomy reality is that the year 2020 has seen the biggest collapse in per capita incomes since the year 1870.
In South Africa alone, unemployment rose by one percentage point, taking the number to 30.1% in just the first 3 months of the year. Taking this stark reality into consideration, South Africa’s economy is expected to contract by 7.2% in 2020, making it the largest contraction in the past 90 years. The increase in commodity prices and the weakening oil prices are in our favour, but as SA depends on the export market, we are suffering severe consequences of a market that has been heavily impacted by economic restrictions and a collapse of global demand.
Fiscal, Monetary and Other Measures
Together with the private sector, labour markets, communities and the central bank, the South African government has been able to secure Covid-19 economic response packages of R500 billion - making it one of the biggest support packages in developing nations. In addition, the following has been achieved in the past 100 days:
Revised Fiscal Framework For 2020/21
For the first time ever, the total consolidated budget spending will exceed R2 trillion.
In the first two months of the 2020/21 term, we were in a collection deficit of R35.3 billion in gross tax revenue. This means that:
Health and Other Frontline Services
How will the most vulnerable South Africans be protected?
These measures will be implemented until October 2020.
4.7 million workers have received UIF (Unemployment Insurance Fund) payouts in Covid-19 relief, totalling R23 billion as of mid-June.
Changes to the division of revenue
Covid-19 Loan Guarantee Scheme
In its first month, over R10 billion has been lent, and as the country moved into an advanced level 3 lockdown, most of the economy has reopened. This means that more businesses will need money in order to operate again. The Covid-19 loan guarantee scheme caters to businesses in need of support to get started again post-lockdown. This applies to all businesses, even those with a turnover exceeding R300 million.
Amendments are in the process of being finalised in terms of the repayment holiday and turnover limits.
An announcement will be made by SARB and commercial banks shortly.
The government is also looking to expand the scheme to non-bank lenders.
The Medium Term Expenditure Framework process will incorporate the principles of zero-based budgeting, as seen in the Public Expenditure Reviews. The objective is to reduce all expenditure that the country can no longer afford.
The upcoming Medium-Term Expenditure Framework will offer a pilot to this approach.
More details on the tax proposals will be provided in the 2021 Budget.
Aligning spending to the structural reform agenda
A policy laid by Towards an Economic Strategy for South Africa was considered and accepted last year. Some measures were delayed as a result of Covid-19, but the deputy minister Masondo is now ready to co-ordinate implementation as the head of the Vulindlela office.
One of the measures includes moving away from the electricity supply system that was introduced in 1923. Allocations were provisionally made to Eskom on the basis of understanding that the Government’s Electricity Roadmap would be implemented. There has not been much progress on this matter, and Minister Mboweni reiterated that in order to implement the principle of zero-based budgeting, the government will need to see value for money. This means that Eskom will need to provide a progress report on meeting the milestones as set out in the Roadmap.
Progress on other reforms will be laid out in the Medium-Term Budget Policy Statement.
Fiscally Sustainable Public Sector Compensation
Almost half of all consolidated revenue will be allocated to public workers. Minister Senzo Mchunu is currently negotiating appropriate compensation that is affordable and fair.
The Presidency hosted a Sustainable Infrastructure Development Symposium and have considered 177 infrastructure projects across both the public and private sectors.
In light of the amendments to our budget for 2020, we understand that Treasury will be focusing tremendously on tax collection and tax administration as this is the time that the country will be needing it most. With that being said, we encourage all taxpayers to settle their outstanding taxes promptly, as stringent repercussions can be expected for those who have failed to do so. If you want to get out ahead of it and need assistance filing your taxes in 2020, contact TaxTim today. TaxTim will help you file your taxes quickly, easily and correctly.Image by Steve Buissinne from Pixabay