Everyone wants their piece of cake, but just how far can the finance minister go in cutting expenditure and increasing taxes?
Cape Town – With mounting public indebtedness and a deficit that is likely to be around 7% of GDP in the current fiscal year, the 2020 Budget is undoubtedly the most challenging in South Africa’s post-apartheid history. Yet, there is considerable uncertainty about how far Finance Minister Tito Mboweni can go in cutting expenditure and increasing taxes.
This is the view of Absa Economist Peter Worthington, who said: “The 2020 Budget is likely to be something of an inflection point for South Africa. Given the existing wage deal and the government’s promise not to retrench any public sector workers, we see little room for huge spending cuts in the upcoming fiscal year without damaging service delivery. A number of other noteworthy issues are likely to get attention in the Budget, including the position on South Africa’s ailing state-owned companies.”
Businesses, economists, politicians and social activists have all weighed in with suggestions on how Mboweni needs to cut and share an ever decreasing budget cake.
The DA said Wednesday’s Budget was Mboweni’s last chance to prove his credibility and suggested that what South Africa needed was “urgent national debt stabilisation”.
DA public service and administration spokesperson Leon Schreiber said: “This is the last opportunity to demonstrate that the credibility gap between the strong language in budget speeches on cutting debt and the public wage bill, and achievements to date is not going to spiral out of control.”
DA finance spokesperson Geordin Hill-Lewis said he would be tabling a Fiscal Responsibility Bill with measures to contain fiscal debt. “The unrestrained expansion of public debt means more is spent on interest charges, and there is less money for essential services.”
“If this does not change in a very significant way, then South Africa will lose its only remaining investment-grade credit rating and will not avoid a solvency shock.”
Stellenbosch University Business School economist Professor Andre Roux said: “If Mboweni gets his way, we can expect him to table a necessarily restrictive – and therefore largely unpopular – budget speech. At the same time, it would be politically untenable to turn a blind eye to the very real predicament facing millions of South Africans – poverty, unemployment, and disillusionment. The notion of actually reducing government outlays on, for instance, education, social grants, and health care, is, in the circumstances, a ludicrous one.
“In addition to the external forces, over which we have no control or influence, the Finance minister also has to contend with a number of obstacles – often self-imposed – to growth and development.”
SA Institute of Chartered Accountants National Tax Committee member Elizabeth Lombaard said: “A tax rate increase may alienate the just under five million taxpayers that are already contributing significantly. Since these tax brackets have not been adjusted in the last two years, it would certainly create goodwill and some welcome relief for taxpayers if inflation could be taken into consideration.”