Sometimes the focus should not be on what was said, but rather on what was left unsaid. The Supplementary Budget tabled by Minister Tito Mboweni on 24 June 2020, centred around the potentially disastrous trajectory of South Africa’s fiscal affairs.
The Supplementary Budget can easily be summarised in Figures 4.1 and 4.2 (below) of the Budget Supplementary Review Document read together with an extract from the foreword which states: ‘For several years, the National Treasury has been warning that an absence of fiscal space would leave South Africa vulnerable to external shocks. That risk is now a reality… South Africa has begun heading into a debt spiral.‘
The above reflects how South Africa will be caught in a debt trap if government does not actively put measures in place to decrease government expenditure and increase economic activity.
If government is to continue on the current trajectory, debt-to-GDP could reach 140%. With spiralling debt, the debt service cost will increase exponentially, eventually resulting in South Africa defaulting on its debt.
The focus should, however, not be on what was said in the Budget Speech, but rather on what was left unsaid.
Even though the Minister alluded to tax increases of R5bn in 2021/22, R10bn in 2022/23, R10bn in 2023/24 and R15bn in 2024/25, no mention was made of how this would be achieved.
The fact that no tax policy announcements were made, indicates that Treasury requires more time to contemplate these changes.
Interestingly, the R5bn figure could easily be achieved by bracket creep alone. Taxpayers have to wait until next year to see exactly how Treasury expects to collect additional tax revenue.
There has been a great deal of speculation in the media on the introduction of a so-called wealth tax, but the feasibility of a wealth tax in South Africa would need to be investigated.
The viability of a wealth tax depends on the amount of tax that would be collected versus the cost of its administration. Critics of a wealth tax argue that it would be too costly and complex to implement. It seems Treasury agrees.
No mention was made of the National Health Insurance (NHI) and its introduction. The cost of putting this in place in the current economic environment makes it untenable.
Treasury seems to have placed NHI on the back-burner until South Africa has weathered the COVID-19 storm and is able to demonstrate consistent and reliable growth.
The loss of tax revenue due to the tobacco and alcohol ban has been immense. Many commentators are calculating R1.5bn per month lost in sin tax collection alone. On the other hand, the illicit economy has flourished.
In the February 2020 Budget Speech, the Minister stated that SARS would ‘renew its focus on illicit and criminal activity’, however, it could be argued that the lockdown strengthened the illicit economy, with SARS powerless to intervene.
Treasury would need to focus resources on the tax revenue already lost which will continue to be lost if the illicit economy continues to grow.
Fortunately, the Supplementary Budget was not all doom and gloom. Treasury acknowledged economic reform focused on the underlying structure of the economy.
Primarily it aims to reduce the cost of doing business, taking steps to improve the competitiveness of the economy by reducing the dominance of state-owned companies in network industries, and supporting new and existing sectors with large scale job creation potential.