Back
Budget Speech
Financial Planning
February 21, 2019

Budget 2019 in a nutshell

<strong>By: Bernard Sacks, Tax Partner at Mazars</strong>

The National Budget for the 2019/20 fiscal year is tougher than ever before, with Minister of Finance, Tito Mboweni having had virtually no leeway to adjust taxes. However, the South African taxpayers will once again find themselves being squeezed by the fiscus for a number of reasons.

The most notable of these is the announcement that no changes will be made to the personal income tax tables and brackets. This means that the South African public will be confronted with full force of ‘bracket creep’, as annual salary increases will likely result in many individuals moving into higher tax brackets and finding themselves being taxed significantly more as a result. Treasury expects R12.8 billion in additional revenue through this measure.

In addition, no changes have been made to the monthly medical tax credits for medical scheme contributions. This measure will have a similar effect to bracket creep, and is expected to raise a further approximately R1 billion.

Fuel price increases are also very likely to be felt by the consumer this year. The increases in the general fuel levy and the Road Accident Fund levy are more modest than last year at 15c and 5c per litre respectively. There will, however, be a new carbon tax on fuel with effect from 5 June 2019 at the rate of 9c per litre on petrol and 10c per litre on diesel.

By far the biggest concern to come out of this year’s Budget Speech, is the support needed for the country’s state-owned enterprises (SOEs). Government has acknowledged that Eskom will require support amounting to R23 billion per year over the medium term. It will announce steps in restructuring the electricity market over the next several months. As stated by the Minister, Eskom itself will have to undergo radical restructuring as ‘pouring money directly into Eskom in its current form is like “pouring water into a sieve”.

The need for restructuring of SOEs is not restricted to Eskom with entities such as Denel and SAA also earmarked for receiving attention and financial assistance. It is stated that assistance in this regard will largely be funded by the sale of assets, but we feel that there needs to be more clarity regarding exactly where the money will be sourced from. The extent of the support required for SOEs results in severe constraints on the expenditure side.

In terms of curbing Government spending, Treasury has in large part focused on cutting remuneration, most notably by allowing early retirement for older public servants.  While it is estimated that this measure will save R4.8 billion, one can only speculate on the additional strain that this will place on the public pension fund, and the amount of valuable skills that will be lost as a result of experienced public servants leaving the workforce.

The positive news is that measures to stimulate economic growth and job creation in a number of diverse areas were announced. These critical activities will need to demand increasing attention of National Treasury and the private sector will have to play its part.

Lastly, we do expect to see revenue collection improving this year. The South African Revenue Service will be gearing up to better enforce the collection of taxes such as excise duties on cigarettes and other tobacco products. It will reintroduce the large business unit in April 2019. Cross border tax evasion schemes will also receive attention.

With that said, even though the revenue collection deficit is predicted to shrink by around R42.7 billion from last year, it remains an uncomfortably large figure at R1,302 trillion.

Insurance technology with a difference.

Say goodbye to complex legacy technology, and hello to a different kind of software solution.

Book a demo