Finance minister Tito Mboweni has delivered his 2019 budget speech, outlining the state of South Africa’s finances, and where the government will spend its money in the year ahead.
State of South Africa
The minister painted a bleak picture as the country struggles with rising expenditure, failing SOEs and declining revenues, but outlined several processes underway to try and rein things in.
Economically, real GDP growth for South Africa in 2019 is forecast at 1.5%, and is expected to reach 2.1% by 2021.
In the medium term, spending reductions are expected at R50.3 billion, while provisional allocations of R75.3 billion have been budgeted, mainly to deal with the Eskom crisis.
The country’s budget deficit has widened because of Eskom and because of a revenue shortfall, and is now seen at 4.5% of GDP in 2019-20 – up from the 4.2% forecast in the October mid-term statement.
Expenditure in 2019 is expected at R1.83 trillion, with the bulk (R1.1 trillion) going to social services.
State wages and compensation remains the largest category of spending, accounting for 34.4% of consolidated expenditure – a level which the finance minsiter described as “unsustainable”. Measures are in place to realise a R27 billion reduction in spending here, he said.
However, much of this will be undone by the costs of rescuing Eskom.
Mboweni announced no changes will be made to income tax brackets for the year – but the tax-free threshold will be increased at a level below inflation.
By not adjusting the income tax brackets for inflation, government will raise R12.8 billion, he said.
Other tax changes include:
- Fuel levies will increase by 29 cents per litre for petrol and 30 cents for diesel. These below-inflation increases in fuel taxes together with the carbon tax on fuel will raise R1.3 billion.
- General fuel levy increases by 15 cents per litre on 3 April 2019.
- The road accident fund levy increases by 5 cents per litre on 3 April 2019.
- A carbon fuel levy at 9 cents per litre on petrol and 10 cents per litre on diesel will be introduced with effect from 5 June 2019.
- Increases in alcohol and tobacco excise duties will raise revenue of R1 billion – through a 7.4% and 9% increase.
- The sugar tax (under the promotion of health levy) will increase to account for inflation, moving from 2.1 cents per gram in excess of 4 grams of sugar per 100ml, to 2.21 cents from 1 April 2019.
- There will be no increase in the medical aid tax credit. This is to help fund the rollout of national health insurance. The zero-increase will allow government to generate additional revenue of R1 billion in 2019/20.
- White bread flour, cake flour and sanitary pads will be zero-rated for VAT purposes from 1 April 2019.
New taxes in the works
- Government will review the ad valorem excise duty on motor vehicles in South Africa to remove an anomaly where vehicles produced locally are taxed at a higher rate than imported vehicles.
- There are plans to introduce a gambling tax to fund rehabilitation and awareness-raising programmes. This will be drafted in 2019.
- Government intends to start taxing e-cigarettes and ‘tobacco heating products’.
- Government will review the scope and definition of fuel levy goods in the Customs and Excise Act (1964) to include biofuels in the payment of RAF and fuel levies.
The new tax brackets are outlined below:
The big topic on everyone’s mind in the lead up to the budget was bailouts for SOEs – and especially what was going to be done with Eskom.
According to Mboweni government will not take on the power utility’s debt, as has been suggested by Eskom in the past.
“I want to make it clear: the national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it,” he said.
However, he said that the restructuring plan – to split Eskom into three entities – is on track, and that Treasury is setting aside R23 billion a year for the next three years to financially support Eskom during its reconfiguration.
The total of R69 billion is a “shareholder” move to assist the utility to pay its debt, however it comes on condition that Eskom cuts costs to cover debt-service costs and meet redemptions.
The 2018 MTBPS allocated R5 billion to South African Airways (SAA), R1.2 billion to South African Express Airways and R2.9 billion to the South African Post Office (SAPO) in the current year.
The only change to this is an additional R1.5 billion, allocated to SAPO over the next year.
Other state-owned companies, including SAA, the South African Broadcasting Corporation and Denel, have requested fiscal support to continue operating, however they will not get bailouts that blow the expenditure ceiling.
Government has revised the contingency reserve for 2019/20, giving an additional R6 billion to respond to possible requests for financial support.
“Any financial support agreed on will be raised from the sale of non-core assets and will be excluded from the expenditure ceiling,” the department said.
While government pushes ahead with its plans to make land expropriation without compensation more clear in the Constitution, Treasury is also allocating funds to accelerate land reform and acquire state land.
R18.4 billion has been allocated to accelerate land reform over the medium term, which will help finalise more than 1,700 restitution claims and acquire more than
325,000 hectares of land for landless South Africans.
In addition, government has allocated R138 million to help resettled farmers to purchase equipment and develop farms over the medium term.
As part of the President’s economic stimulus and recovery plan, government and organisations representing farmers of different commodities will implement 262 priority land-reform projects at a cost of R1.8 billion.
Who gets what
National Treasury published a breakdown of how the 2019 finances will be split among the various sectors: