Government has been under enormous pressure to introduce a basic income grant. There is, however, an acknowledgment that the country does not have the fiscal space to introduce this grant and that doing so would pose a risk to the economy.
SA spends 3.3% of its GDP on social expenditure, which is high in comparison to other emerging marketing economies.
As far as tax increases are concerned, it is unlikely there will be a VAT hike announced. A year ago, former finance minister Tito Mboweni announced the corporate tax rate would be reduced by 1% to 27% in 2022. However, no mention of this change was made in the medium term budget, which raises the question of whether it remains on the agenda.
Tax brackets were increased by 5% last year, which was more than inflation, making it unlikely there will be significant changes this year. Other tax matters to keep an eye on include that tax breaks on retirement savings could be raised.
In the 2021 budget speech, Mboweni said Treasury was relooking at regulations around the tax treatment of home office expenses. This would be a welcome amendment as the requirement to claim home office expenses are fairly stringent.
Those who will be looking to Godongwana’s maiden budget for innovative ideas on how to get SA back on a sound fiscal path are likely to be disappointed. However, there is cautious optimism the finance minister will endeavour to hold the line when it comes to not increasing taxes and trying to contain expenditure.
- Andrew Duvenage is MD of NFB Wealth Management