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:

1. Besides introducing the Adjustments Appropriation Bill and a Division of Revenue Amendment Bill, the budget also formalises the two tax bills, asking Parliament to approve the Covid-19 response package.
2. To align with Ramaphosa’s objective to: “not merely return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality”.

Mboweni lists some of South Africa’s strengths:

• Our population is young and ambitious
• Our democracy includes our independent judiciary and continuous commitment to social justice
• Our diverse industrial base, our flexible exchange rate, stable inflation and domestic capital markets that allow us to predominantly borrow in our own currency.

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:

• The South African Reserve Bank (SARB) has reduced interest rates, supported liquidity in domestic bond markets
• More than 2 million customers have received payment relief support from commercial banks
• Insurance providers and medical aid schemes have provided payment holidays
• Landlords have provided rental relief

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:

• We are now expected to miss our tax target by over R300 billion. This total is the direct result of tax relief measures amounting to R26 million and tax collection delays of +-R44 million, according to the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill.
• The revised measures present a consolidated budget deficit of 15.7%, amounting to R761.7 billion of GDP instead of the previously projected 6.8% and R370.5 billion respectively, in February.
• The main budget deficit is projected to be 14.6% of GDP.
• The government intends on borrowing about $7billion from international sources of funding in order to support the Covid-19 relief strategy.

Health and Other Frontline Services

• The supplementary budget proposes an allocation of R21.5 billion for healthcare services to assist with the pandemic.
• An additional R12.6 billion is to be set aside for services at the frontline of the pandemic. This allocation will support increased screening and testing, in order for SA to further the opening up of the economy.
• Bed capacity has increased to more than 27 000 for Covid-19 related cases.
• 400 quarantine sites have been identified. These sites have the capacity for about 36 000 beds
• Almost 50 000 community healthcare workers have been deployed. More than 1.3 million people have already been tested.
• A minimum of R5 billion has been allocated to provinces to assist with the educational catch-up plan, social welfare support, as well as the provision of quarantine sites by the department of the Public Works, as well as the response to other sectors.
• Private hospitals have agreed to tariffs in order to assist the public sector.
• The Solidarity Fund has procured medical and protective equipment.

How will the most vulnerable South Africans be protected?

• More than 18 million South Africans have received Covid-19 relief grants.
• The short-term Special Relief of Distress grant will support South Africans who do not have income.
• An additional R25.5 billion will be allocated to the Department of Social Development, bringing the total amount of the Covid-19 relief package to R41 billion.
• Health and hygiene measures have been implemented in 7000 early childhood development centres, and an additional 1800 social workers have been appointed.

These measures will be implemented until October 2020.

Job Creation

• The Economic Support Package has allocated R100 billion for a comprehensive, multi-year response to unemployment.
• 1 billion has been allocated to the President’s job creation and protection initiative, which includes a repurposed public employment programme and a Presidential Youth Employment Intervention. This will roll out over the medium-term.

Unemployment Insurance

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

• The national share for 2020/21 increases from R758 billion to R790 billion.
• The provincial share decreases from R649 billion to R645 billion.
• The local government share increases from R133 billion to R140 billion. An additional R11 billion is allocated to the local government through the equitable share.
• R9 billion will be reprioritised to fund additional water and sanitation provision, including the sanitisation of public transport.

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.

Debt Stabilisation

• Government will stabilise debt at 87.4% of GDP in 2023/24.
• Cabinet has adopted a target of primary surplus by 2023/24.
• Spending needs to be adjusted by R230 billion over the next two years.
• Tax measures of R40 billion will be necessary over the next 4 years.
• R3 billion will be allocated to recapitalise the Land Bank, as 29% of SA’s agricultural debt is held by this bank.

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.

Infrastructure

The Presidency hosted a Sustainable Infrastructure Development Symposium and have considered 177 infrastructure projects across both the public and private sectors.

• The government has committed R100 billion to the Infrastructure Fund over the next 10 years.
• As the private sector accounts for more investment expenditure than the public sector, long-term interest rates need to be reduced in order to allow businesses and households to speedy economic growth.

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.