Mboweni walks a tightrope in Budget 2021 amid out-of-control spending

Eleven months after South Africa was placed under lockdown due to Covid-19, and the country having lost nearly 50 000 citizens due to the pandemic, finance minister Tito Mboweni tabled his budget speech in parliament today.

“But we are not without hope. Today, I want to leave you hopeful and outline how we will leave this economy in a better shape for those who come after us,” Mboweni said.

Despite “modest improvements”, according to Mboweni, government debt was spiraling out of control and nearing R5-trillion.

“We owe a lot of people a lot of money.

These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders,” Mboweni said.

Despite this bleak situation, Mboweni maintained that the 2021 budget framework puts South Africa on course to achieve a primary surplus.

By doing this, government debt would stabilise at 88,9% of the GDP in 2025/26. Given the circumstances, Mboweni did well, according to independent economist Ulrich Joubert.

“It is a positive budget, but I am still worried how he will stimulate the economy on the fiscal side,” Joubert said.

According to Joubert the only way to do it was to keep interest rates low and inject more money into the economy.

Taxpayers can, however, breathe a little sigh of relief after the budget speech presentation.

The treasury admitted that the government could not improve its financial problems by taxing individuals. Tax brackets were increased by 5% more than inflation at 3.2%.

Taxpayers will thus pay less tax from 1 March.

This also means that salary increases would not take them to higher tax brackets.

The fuel levy increased by 26c per litre – a hike of 15c per litre in the general fuel levy and 11c in the Road Accident Fund levy.

As expected, sin tax was increased drastically by 8% – three times higher than the inflation rate.

The increase is effective immediately.

Business leader Michael Jordaan questioned the sensibility behind the increase.

“If a bottle of wine sells for R45, government earns R10.04 from excise duty and VAT, compared to wine grape producers earning a net farming income of 77c per bottle,” Jordaan tweeted after the speech.

According to Mboweni it was “clear” that excessive alcohol consumption could lead to negative social and health outcomes.

“Consumers do react to price increases, and higher prices should lead to lower consumption of alcohol products with positive spin offs,” Mboweni said.

Most grants were increased, but by less than inflation.

The former leader of the DA, Mmusi Maimane expressed his view about the speech in a tweet shortly after Mboweni finished:

“It’s a dark day for poor South Africans in terms of #Budget2021.

Poor increases to welfare, increase in fuel levy, energy and soon municipal rates.

It’s tough with a bloated gov, that has borrowed unsustainably.

We have no priorities or urgency.

We need change and change soon!”