Tax payers will be squeezed from all sides following this year’s Budget, as government finances take strain from its Eskom liabilities and the weak economy.
Government will have to borrow R243 billion in the next year to fund its expenses, and that’s only if everything goes according to plan. The plan includes getting more money from a new fuel tax, higher tax income from individuals, forcing civil servants to take early retirement, and being stricter about how it supports state-owned enterprises (SOEs), particularly Eskom.
Budget2019: Most NB number for me is Debt to GDP. This is also a crucial ratio for ratings agencies. In October MTBPS it was revised sharply upwards and projected to stabilise at 59.6% in 2023/24 (from 56.2%). Cannot see how it can be kept below 60%, but somehow it must.— Karin Richards (@Richards_Karin) February 20, 2019
Here are some of the new developments that Finance Minister Tito Mboweni announced:
In addition to a new hike of 15c per litre in the general fuel levy, plus an increase of 5c a litre in the Road Accident Fund (RAF) levy, you will now also have to pay a carbon fuel levy of 9c a litre on petrol and 10c on diesel.
While the carbon tax is linked to the new carbon tax on companies, which has just been approved by parliament, the money will flow straight to the government coffers. It won’t be allocated specifically to “green” causes.
In total, fuel levies will increase by 29 cents per litre for petrol and 30 cents per litre for diesel
The RAF and general fuel levy hikes take effect on April 3, and the carbon tax on June 5.
There have been small increases in the tax thresholds and tax rebates for individual taxpayers this year.
For a taxpayer below the age of 65, this means an annual saving of a whopping R153.
And for the first time since the early 1990s, there will be no inflationary adjustments on personal income tax rates.
Usually, the rate of income tax you have to pay is increased every year to make provision for inflation.
This year, it hasn’t.
This means that if you get a salary hike in line with inflation this year, you will pay more tax.
Government expects to earn almost R13 billion from this manoeuvre.
Government has also not changed the monthly amount you can deduct for your medical scheme contribution. This remains R310 for the first two members in your household, and R209 per person thereafter. Given that membership fees increase every year, this means you will have to fork out more.
The public wage bill is unsustainable, Mboweni said in his speech. National and provincial civil servant pay will be reduced by R27 billion over the next three years. Already, government employs 16,000 fewer employees than in 2015.
“The first step is to allow older public servants who want to do so, to retire early and gracefully.” There are 126,710 civil servants between the ages of 55 and 59 years. Mboweni expects that up to 30,000 may take early retirement.
This should save more than R20 billion by 2022, government expects.
Mboweni has also announced that overtime and bonuses will be limited in the civil service. Also, the staffing of diplomatic missions is “unjustified” and will be under review.
As “a gesture of goodwill”, members of Parliament and provincial legislatures and executives at public entities will not receive a salary increase this financial year.
The wage freeze for provincial politicians alone will save R132.8 million.
Mboweni warned that state-owned companies pose “very serious risks” to government finances.
Funding requests from SAA, SABC, Denel, Eskom and others have increased, with several requesting state support just to continue operating. “Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?”
The minister said that, where possible, corporate partners for these entities are sought. In addition, government is going to be stricter about the guarantees it provides for state-owned enterprises.
These guarantees, which entities need to get funding, won’t be provided for day-to-day operational costs. If an entity wants a guarantee from government for these daily costs, it will have to appoint a “Chief Reorganisation Officer”.
Eskom already has war rooms, task teams, special cabinet committees, close involvement by the public enterprises minister, and as almost an afterthought, its own board. And now a chief reorganisation officer.— Joseph Cotterill (@jsphctrl) February 20, 2019
The only state-owned entity that received a positive mention from Mboweni was the Land Bank, which was congratulated for reducing its debt.
Budget: Minister asks whether state owned enterprises still necessary, but apart from asking the question provides no details of a possible strategy. Too politically sensitive to address ahead of an election. Next year we will ask the same question.— David Shapiro (@davidshapiro61) February 20, 2019
“Pouring money directly into Eskom in its current form is like pouring water into a sieve,” said Mboweni. Still, in addition to the billions it is offering Eskom in guarantees, government will set aside R23 billion a year to financially support the embattled utility while it is splits into three units.
“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,” Mboweni said.
“The global renown of South Africa’s art and culture is an expression of our soft power and our heritage,” said Mboweni. Apart from a new national theatre and museum, government will also consider financial support for the National Archives, a national orchestra and ballet troupe.
SARS will relaunch its unit that specifically dealt with large businesses in April.
“The large business unit was a major source of tax collection, and its skill was renowned,” said Mboweni. It was abolished under the previous SARS commissioner Tom Moyane.
Government wants metals to stay in the country and be reused for other purposes.
The ‘health promotion levy’ was introduced last year, which applies to cooldrink with more than 4 grams of sugar per 100ml. This year, the tax has been hiked from 2.1c per gram above 4 grams, to 2.21c per gram.
Government will give first-time buyers subsidies through its Our Help to Buy scheme. There have been state housing subsidies in the part, but government is now assuming direct control of the scheme – taking it away from the provinces. A national marketing campaign will be launched for the subsidies, which will amount to R950 million over three years.
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