Wishes and predictions for finance minister Enoch Godongwana’s first budget speech next Wednesday include announcements on the basic income grant, state-owned entities, personal income tax, Sars, value-added tax, environmental tax and the all-time thorn in consumers’ side, fuel levies.
Smokers and drinkers will also wait anxiously for the announcement of the so-called sin taxes on tobacco and alcohol, which will this year also include tax on vaping products. Professional services firm PwC shared its wishes and predictions earlier on Tuesday.
Regarding economic growth, PwC’s real gross-domestic-product (GDP) growth forecasts are 4.2% for 2021, 2.3% for 2022, 1.8% for 2023 and 1.8% for 2024, while its nominal GDP growth forecasts are 8.8% for 2021, 7.2% for 2022, 6.4% for 2023 and 6.3% for 2024.
As the Medium-Term Budget Policy Statement (MTBPS) was quite conservative in its GDP growth forecasts to bring more realism into the outlook for fiscal revenues, PwC expects this stance to be the same for Budget 2022, but with a slight upward revision for the current calendar year. PwC also expects an update on progress of Operation Vulindlela.
With South Africa’s fiscal balance now on a narrowing trend, PwC’s wish is that the minister sticks to the hard line he set in October 2021 to substantially narrow the fiscal deficit over the medium term. “He will need to show financial prudence when talking about the idea of a basic income grant and its financial viability.”
While the MTBPS reported that consolidated government spending will be cut by 2.5% in 2022/2023 to R2.075tn, the spending cut is coming off a high base, but is nonetheless unprecedented as there has never been a decline in nominal fiscal spending under the ANC. PwC hopes that the planned cut in spending will remain in the revised fiscal framework to reduce the fiscal deficit over the medium term.
For state-owned-entities (SOEs), PwC wishes to see a comprehensive cost-benefit analysis of the contribution of SOEs to society and the economy, as well as a comprehensive update on the restructuring of Eskom.
While it is possible that South Africa’s credit ratings have bottomed out, with Fitch Ratings revising the outlook on its “BB-” rating from ‘negative’ to ‘stable’ in December 2021, PwC hopes that the improvement in fiscal and debt metrics following the GDP rebasing will put an end to the decline in ratings.
Although the budget speech usually makes limited reference to credit ratings, PwC hopes the minister will highlight any progress made in the key areas observed by ratings agencies and give us some good news.
As the 2021/22 fiscal year saw a remarkable recovery in tax revenues after falling R175 billion short of the original budget estimate in the 2020/21 fiscal year due to the pandemic, with Treasury revising this figure in the MTBPS by R120 billion, it is still conservative.
PwC expects that actual tax revenues could come in up to R200 billion higher than the original Budget 2021 estimate if corporate income tax (CIT) collections continue through March, as CIT is the biggest contributor to the surplus and can exceed the original budget estimate by about R120 billion.
Personal income tax (PIT) collections are also performing relatively strongly and could exceed the original budget estimate by about R40 billion, while PwC expects that value-added tax (VAT) could exceed the original budget estimate by about R10 billion.
PwC hopes that Treasury will not increase taxes given the significant improvement in revenue collections and the outlook for 2022/23 puts it in a position to adopt tax policies that support economic growth.
On the other hand, PwC predicts that Treasury will increase its tax revenue forecast and that taxes will not see any significant changes given the better-than-expected performance in revenues.
PwC also hopes to see changes to the governance of the South African Revenue Service (Sars) although it already implemented a number of the recommendations of the Nugent Commission. Budget 2021 indicated that a discussion document proposing legislative amendments to Sars governance would soon be published, but this has not been done.
Other PwC predictions for the budget speech
Other PwC predictions are:
- no change to the dividends tax rate
- no changes to the general CIT rate of 28% in 2022/23 and the inclusion rate for capital gains tax
- no significant reductions in PIT rates with full fiscal drag relief adjustments to support the economic recovery
- an inflationary adjustment to the medical tax credit
- an announcement on the introduction of the two-pot retirement system
- a formal announcement on an exit tax for retirement funds when you move to another country
- no new wealth taxes
- no change to the VAT rate
- no significant changes to the rates of ad valorem excise duties
- a fuel levy increase of around 20c/litre
- Road Accident Fund levy increase of 13 to 15c/litre
- no increases in transfer duties
- some relief in the tax brackets
- further increases in excise duties on tobacco and alcohol products
- a specific excise duty for vaping products
- an increase in carbon tax from R134 per t/CO2e to R144 or R145 per t/CO2e for 2022 (CPI+2%)
Other PwC wishes for the budget speech
Other PwC wishes include:
- the reduction in the CIT rate from 28% to 25% over the medium term in a tax neutral manner
- personal income tax (PIT) relief
- some tax relief for expenses that result from the new way of working remotely
- no increase of the general fuel levy.