SAICA’S BUDGET 2021 ANALYSIS AND COMMENTARY
Refuelling the tank of the South African economy will have to start with rebuilding trust between government and societal partners and reaching actual consensus on the principles of how this rebuilding task will be carried out
The Minister of Finance, Minister Tito Mboweni, tabled the National Budget on 24 February. The Budget sees a departure from the narrative in the Medium-Term Budget Policy Statement 2020 and seems to enter a new consensus that government will not just listen but will actually hear what the people have to say.
Rebuilding our economy is at the core of the budget and SAICA’s theme for this year talks to the idea of refuelling the economic tank. South Africa has quite a long journey to travel and there are a host of issues and challenges that government seems to have kicked down the road while trying to deal with what are considered to be more pressing matters. If we can get through some of these issues, we will need to have something left in the tank to sort out the remaining issues. The interventions that grow the economy refuel the tank while those that slow the economy are either fuel inefficiencies that need maintenance or are like holes in the tank that need major intervention to be plugged. This has to be done before we get to an empty tank and grind to a halt, bringing major disaster for our country.
Budget 2021 acknowledges that the Minister has consulted widely, and it seems clear that he has in fact listened to many. SAICA commends the Minister on heeding from businesses’ calls for infrastructure revitalisation and corporate tax rate reductions to individual taxpayers’ call for no tax increases. Also, organised labour’s requests to rethink the wage bill and position cuts were heard, with with wage ceilings or freezes being proposed. All these concessions and plans are based on critical assumptions that only work through stakeholder trust and consensus as its foundation and proper execution as its focus.
SAICA has prepared an in-depth analysis of the Budget, which can be found here. A few of those analyses are set out briefly below. In addition, a dedicated Budget microsite has been created which includes pre-budget and post-budget commentary.
Trust and consensus to refuel the tank
Every year for at least the last 13 years ‘this year’s’ budget was labelled as the most important. This year is different, as many more lives depend on ‘the Plan’ and ‘the Budget’. The COVID-19 pandemic has made it glaringly clear that both ‘the Plan’ and ‘the Budget’ need a rethink and that some serious questions need answers.
As processes attempting to ensure accountability, efficiency and transparency have been treated with disdain over the years, it has become commonplace for courts to express judgment on the failures of those who have abdicated their constitutional and legal obligations of oversight and dubbed them ‘constitutional delinquents’. What we are witnessing is the breakdown of trust in government and its ability to meet its constitutional mandate. Globally, the pandemic has eroded even further the trust society has in others, but particularly that trust which society has in government’s ability − the same applies to South Africa.
Following on from trusting each other is a lack of consensus.
In 2017, the Parliamentary Standing Committee on Finance challenged civil society to give input on how to grow the economy. SAICA took up this challenge and identified that the lack of consensus and accountability underpinned growing the economy and undermined interventions planned for its revival. In 2018, SAICA presented the SAICA 7 as critical consensus items to rebuild the economy, which consensus items were reiterated in 2020. SAICA considered three of the SAICA 7, namely accountability, education and crime, in more detail in this year’s analysis.
For various reasons, revenue collection in relation to estimates continues to decline year on year. Total tax collections are estimated at around R1,2 trillion for the year, 10,6% lower than the prior year and reflecting an estimated shortfall of R213,2 billion in comparison to the initial 2020 Budget.
There was a decrease in the expected shortfall by R99,6 billion, compared to the 2020 Medium-Term Budget estimate of R312,8 billion, which shows an improvement to what was expected mid-year and is effectively ‘additional cash’ on hand not expected as at October.
Change in policy with respect to tax rates
Due to the aforementioned decrease in the expected shortfall between the 2020 Medium-Term Budget Policy Statement and now, government has decided that it will not introduce measures to increase tax revenue in this Budget. Previously announced increases amounting to R40 billion over the next four years will be withdrawn.
There is also a proposal to decrease the corporate income tax rate in future, starting with a proposed decrease to 27% effective April 2022 and future decreases to be considered in a revenue-neutral manner.
For years now, SAICA has been advocating for this position – lower taxes, resulting in more disposable income, more spending and more investment, plus a focus on reducing expenditure to a reasonable level – these are all steps in the right direction towards refuelling the economic tank.
Performance of COVID-19 tax measures
The take-up of tax deferral measures for provisional tax and specific excise duties, as well as those requiring pre-approval by SARS, was higher than expected, providing cash flow relief of over R28 billion.
There was lower take-up of the PAYE tax deferral, as companies used only R1,9 billion of the projected R19 billion. It is not clear what this is attributed to, but it could possibly relate to the administration of applying the relief.
An additional R4 billion in tax deferral relief has been provided to the alcohol industry in the past month through case-by-case applications. These deferrals will flow through to the next fiscal year.
Focus on improving tax administration and rebuilding SARS
As has always been maintained by SAICA, a more efficient and effective tax administration will lead to improved taxpayer behaviour, improved compliance and consequently an improvement in revenue collections.
It was noted that there will be additional spending allocation of R3 billion for the South African Revenue Service (SARS) to modernise its technology infrastructure and systems, ‘expand and improve the use of data analytics and artificial intelligence capabilities, and participate meaningfully in global tax compliance initiatives’. A digitalised SARS is intended to lower costs of compliance, simplify tax administration and improve collections. Given the recent system related challenges experienced by members, it is hoped that this spending will improve overall user experience, making for more efficient compliance.
We hope that the above plans will materialise sooner rather than later, contributing to a more administratively efficient SARS.
SAICA will present its views and recommendations on the 2021 Budget Speech at the parliamentary hearings to be held at the beginning of March. As SAICA we, together with our members, look forward to not only facilitate much-needed consensus but also knuckle down and collaborate with government and stakeholders in changing the lives of so many that are desperate and despaired.