The 2020 Budget – A Summary
Finance Minister, Tito Mboweni painted a rather bleak picture of South Africa’s economic position, with low growth driving the proposed interventions.
Treasury has forecast that the economy will grow by a meagre 0.9%, while inflation will level around 4.5%. The budget deficit for 2020/21 is expected to grow to 6.8% of GDP, revenue is anticipated to be 29.2% of GDP (R1.58 trillion) and expenditure has been forecast at 36% of GDP (R1.95 trillion).
The main points are listed below:
Corporate tax: Some good news for business growth. Mboweni proposed broadening the corporate income tax base which would result in additional revenue that could be used to reduce the corporate tax rate soon.
Income tax: Taxpayers will be paying 5.2% less income tax as an above inflation increase in the personal income tax brackets and rebates comes into effect.
Fuel levies: An increase of 25 cents per litre will be added to the fuel levy, consisting of a 16 cents per litre increase in the general fuel levy and a 9 cents per litre increase in the RAF levy.
Tax free savings: The annual contribution limit to tax-free savings accounts has increased by R3 000 from 1 March 2020.
Expat tax: Government will increase the cap on the exemption of foreign remuneration earned by South African tax residents to R1.25 million per year from 1 March 2020.
Medical aid tax credits: Tax credits will increase from R310 to R319 per month for the first two beneficiaries, and from R209 to R215 per month for remaining beneficiaries.
SOE Bailouts: The key funding has been allocated over the next three years: Eskom: R112 billion (R56 billion in 2020/21) and SAA: R16.4 billion (R10.3 billion in 2020/21). The government wage bill still comprises the biggest expense in the budget and has been noted as a concern.
Sin tax: Excise duties have increased on tobacco and alcohol by between 4.4 and 7.5%. A new excise duty on heated tobacco products will also be introduced with immediate effect and will be taxed at a rate of 75 per cent of the cigarette excise rate.
Green tax: Carbon tax is set to increase by 5.6% for the 2020 calendar year. The plastic bag levy will increase by 25 cents.
Mboweni noted that cutting expenditure, as opposed to boosting revenue, would be the main adjustment in the budget this year. This doesn’t only apply to government – there will need to be a lot of belt-tightening for individuals and businesses too.