The Finance Minister today delivered his most challenging Budget yet for the 2021/22 fiscal year (12 months ending 31 March 2022) within an environment of a global pandemic which has resulted in falling tax revenues, increased government expenditure requirements and a real need to stimulate inclusive economic growth. The Budget speech evidenced a clear commitment from National Treasury for fiscal consolidation while still expressing hope and confidence in South Africa’s economic prospects.
While there is an expected tax revenue shortfall for the 2020/21 fiscal year (year to 31 March 2021) as compared to the original forecast contained in the 2020 Budget Speech, the expected shortfall is now not as substantial as was anticipated in the Medium-Term Policy Statement delivered in October 2020. The shortfall for the 2020/2021 fiscal year is expected to be approximately R100 billion less than the pessimistic forecast given in October 2020. This has given National Treasury some fiscal space, and consequently no new direct tax increases have been proposed. In addition, previously announced plans to raise tax revenues have for the time being, at least, been withdrawn.
For the 2021/2022 fiscal year, modest increases in the personal income tax brackets and rebates have been granted. This tax relief is balanced with higher than inflation increases in excise duties applicable to alcohol and tobacco products, as well as increases in the general fuel and road accident fund levies.
Notably, from 2022 there is a proposed reduction in the corporate tax rate from 28% to 27%. The resultant revenue shortfall will be offset through curtailing interest deductions and assessed loss offsets as well as terminating certain tax incentives such as the venture capital regime.
On the expenditure side, there is a clear commitment to fiscal consolidation with a proposed average annual growth in government expenditure of less than 1% per annum over the next three years. However, no specific proposals have been made regarding the restructuring of Eskom’s debt.
The consolidated budget deficit (excess of expenditure over revenue) forecast is estimated to be 14% of GDP for the fiscal year ended March 2021. This will be the highest budget deficit on record. The forecast budget deficit has resulted in increased debt levels for government. The current debt-to-GDP ratio is 80,3% and is forecast to increase to a maximum of 88,9% in 2025/26 after which debt levels are expected to stabilize.
It is clear that the time to implement inclusive economic growth initiatives is now in order to improve the economic livelihoods and well-being of all South Africans. We hope that the Finance Minister’s plans in this regard translate to real economic benefits and put South Africa on the right growth trajectory for years to come.