South Africans weren't sure what to expect from Finance Minister Enoch Godongwana's maiden budget speech for 2022, especially after his media briefing before delivering the budget speech. Godongwana admitted to being "a bit scared" when he took the position as finance minister in August 2021, given South Africa's serious debt situation. However, despite being nervous about his role for the country, he has delivered a firm budget that had many South Africans breathe a sigh of relief. The minister seems to feel the same way; he said that he "feels more relaxed" and that the fiscus was turning the tide, adding, "I'm not as panicky as I was."
This week's newsletter summarizes the national budget speech for 2022, detailing the important points you should know.
MORE REVENUE THAN BUDGETED
Some good news was welcomed because the tax revenue collected for the past year was R182 billion more than budgeted. This is partly due to stronger-than-expected personal income tax collections and VAT and mostly due to mining companies that benefitted from a boom in commodity prices. He added that "the improved revenue performance is not a reflection of an improvement in the capacity of our economy." He also cautioned South Africans not to count on the mining windfall for too much longer. This is because mining recovery is moderating, with production having been hit by electricity shortages, high input costs, inadequate rail availability, and regulatory uncertainty.
As much as the additional revenue offered a welcoming blanket of hope, Godongwana said that at least R57 billion of the extra income had already been spent. For the first time since 2015, the additional revenue has been used to reduce government debt. It has also been used to assist businesses and the South African Special Risk Insurance Association (Sasria) following the civil unrest last year.
Still, the 2021 tax boom has changed South Africa's debt trajectory, providing much-needed relief.
STABILISING SOUTH AFRICA'S DEBT POSITION
Godongwana warned that the Government’s debt is in a volatile position. It has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium term. On average, twenty cents of every rand collected in revenue is paid towards debt, which is crowding out the funds needed for health and basic education.
For the first time in seven years, South Africa will reduce its borrowings, and the extra revenue will go towards stabilizing the government's debt position. This fiscal the country will borrow R135.8 billion less than planned.
This will help stabilize its debt ratio at 75.1% of GDP by 2024/25 – three percentage points lower than previously projected. The consolidated budget deficit is also expected to narrow from 6% of GDP in 2022/23 to 4.2% in 2024/25.
The Government now expects to achieve a primary surplus – where revenue exceeds non-interest expenditure – by 2023/24.
This will bring the period of fiscal consolidation to a close, creating space to reconsider the funding of South Africa's priorities in a fiscally stable environment: Treasury said.
BUDGET HIGHLIGHTS
TAX REPRIEVE
South Africans breathed a large sigh of relief when the minister announced that there would be no significant tax hikes.
Below are some of the main points related to taxes for the next financial year:
Corporate income tax cut from 28% to 27%
Since 1990, there will be no hike in the fuel or Road Accident Fund levy for the first time.
Personal income-tax brackets will be increased by 4,5%, which is in line with the inflation rate predicted by Treasury for the 2022/2023 tax year.
The tax-free threshold for taxpayers under 65 years has increased to R91 250 (previously R87 300).
Taxpayers over 65 and below 75 years of age will have their first R141 250 tax-free (previously R135 150), and those taxpayers over 75 years of age will have their first R157 900 tax-free (previously R151 100) of income.
Hikes in excise duties on alcohol and tobacco were kept in line with inflation (between 4.5% and 6.5%) – from above 8% last year.
The employment tax incentive will also increase from R1 000 to a maximum of R1 500 per month in the first 12 months and from R500 to a maximum of R750 in the second 12 months.
There are no changes to capital gains tax.
Donations tax remains unchanged.
The Estate Duty threshold also stays the same.
For medical tax credit, you and your first dependent will be allowed a tax credit of R347 (previously R332) and, after that, R234 (previously R224) for all other dependents.
Click here for an updated take-home pay calculator to see how the new changes to income tax impact your net salary.
SPENDING PRIORITIES
Education and culture receive the largest share of the 2022/2023 budget (24%), with the bulk of spending going towards basic education. 2022 South African Budget Speech, Social development receives 18% and health 14% as part of the other large spending allocations.
Below are some of the main points related to spending for the next financial year:
Spending on road infrastructure is expected to grow from R50.4 billion in 2021/22 to R72.7 billion in 2024/25 at an average annual rate of 13%.
The allocation to Home Affairs, for example, will fall by more than 4%, while police services, law courts, and prisons are getting almost 2% more.
The budget for defense and state security will rise by 0.8%.
Spending on civil servant wages will increase marginally, from R665.1 billion in 2021/22 to R702 billion in 2024/25, at an average annual rate of 1.8%.
This year, additional allocations of R110.8 billion were made to fund the special Covid-19 social relief of distress grant (which costs R44 billion for another 12 months, bursaries via the National Student Financial Aid Scheme, and the presidential employment initiative.
R3.3 billion is allocated to absorb medical interns and community service doctors.
R8.7 billion was added to the Police budget, which will be used in part to appoint 12,000 entry-level constables.
R440.5 million was also allocated over three years to move the forensic chemistry laboratories to the National Health Laboratory Service.
Monthly social grants have been hiked by between 1.9%, for foster care grants, and 5% for old age, care dependency, and disability.
STATE-OWNED ENTERPRISES
Godongwana showed some tough love for state-owned enterprises, including Eskom. He expressed his frustration that the Government paid R290 billion into Eskom since 2013, but the utility was in no better position than in 2008. "So, we have got to take hard decisions. They will have to sell assets."
We spent more time on Eskom than fixing the electricity supply. There's a difference between the two. I don't care who brings the electricity.
The minister further expressed his concern that more than R308 billion had been directed towards bailing out failing state-owned enterprises since 2013, while South Africa had reduced spending on frontline services and infrastructure by R257 billion during this time.
"In this budget, we are shifting from this trend and are restoring our focus on the core functions of government," Godongwana said.
The Government wants to open its doors and motivate more public-private partnerships (PPPs) – which has declined from R10.7 billion in 2011/12 to R5.6 billion in 2019/20.
SMALL-BUSINESSES BOUNCE BACK SCHEME
The Treasury announced that a new business bounce-back scheme would soon be launched. Through various participating banks and development finance institutions, it will offer small business loan guarantees of R15 billion. The Government will underwrite the first 20% of loan losses while the eligibility criteria have been loosened. The new scheme is expected to launch next month.
The Treasury has indicated that they want to introduce a business equity-linked loan guarantee support mechanism by April.
HOW DOES YOUR BUDGET LOOK FOR THE NEXT FINANCIAL YEAR?
Now that you know what to expect regarding taxes in South Africa, you can prepare your own personal budget and manage your salary expectations.
Need a helping hand? If you need assistance with financial planning and a realistic approach that works for you, then contact Wallstreet Financial Services. We can help you find the balance between your income and expenses and aid in setting up a realistic budget for the year ahead.
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