Winners and losers in the budget: Covid funds, tax relief, rising govt debt

Mboweni delivered the all-important 2020/21 budget in the National Assembly on Wednesday, where he projected that the South African economy is expected to rebound by 3.3 percent this year.

Mboweni had the added pressure of delivering government's priorities for the next financial year amid an already ailing economy.

The Covid-19 pandemic has only added onto the fiscal strain.

Mboweni told members of Parliament that Treasury bent over backwards to cushion the blow for citizens while making sure not to leave government coffers high and dry.

He said government has made more room to accommodate the country’s response to the coronavirus crisis, setting aside a substantial amount of money for vaccine procurement.

“With this framework we provide the budget for South Africa's vaccination campaign. This campaign allows us to emerge from the restrictions to economic activity. We are allocating more than R10 billion for the purchase and delivery of vaccines over the next two years.

“We increase the contingency reserve from R5 billion to R12 billion to make provision for the further purchase of vaccines and to cater for other emergencies.”

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Mboweni’s speech comes a day after the unemployment rate rose to 32.5 percent.

He said billions would be pumped into the country’s employment programmes.

Mboweni added that the budget will reduce the tax burden on lower and middle-income households.

Some taxpayers can breathe a sigh of relief.

“We agree that tax increases must be kept to a minimum as we stabilise our public finances. We have chosen not to introduce the tax measures initially proposed in the October Medium Term Budget Policy Statement,” Mboweni said.

“The personal income tax brackets will be increased by 5 per cent, which is more than inflation. This will provide R2.2 billion in tax relief.

“This means that if you are earning above the new tax-free threshold of R87 300, you will have at least an extra R756 in your pocket after 1 March 2021.”

All social assistance grants were also increased – the child support grant increased by R10 to R460 and the old age grant increased by R30 to R1890.

"R6.3 billion is allocated to extend the special Covid-19 social relief of distress grant until the end of April 2021."

But it’s not all good news.

“Fuel levies will be increase by 27 cents per litre, comprising 15 cents per litre for the general fuel levy, 11 cents per litre for the Road Accident Fund levy and 1 cent per litre for the carbon fuel levy. An 8 per cent increase in the excise duties on alcohol and tobacco products,” Mboweni added.

Government expects to collect R1.21 trillion in taxes during 2020/21, R213 billion less than the 2020 budget expectations.

This is the largest tax shortfall on record.

Despite the lifeline for citizens, he admitted South Africa’s failure to arrest rising government.

“Consequently, gross loan debt will increase from R3.95 trillion in the current fiscal year to R5.2 trillion in 2023/24. We owe a lot of people a lot of money. These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders,” said Mboweni.

“Most importantly, we will stabilise government debt at 88.9 per cent of GDP in 2025/26 and the ratio will decline thereafter. This is a significant improvement to the framework we presented in October last year and creates a sound platform for sustainable growth.”

But Mboweni remains optimistic.

“Today I want to leave you hopeful and outline how we will leave this economy in better shape for those who come after us.”