Unpacking the 2020 Supplementary Budget Review Speech

July 6, 2020

South Africa’s Minister of Finance, Tito Mboweni, delivered the 2020 Supplementary Budget review, on 24 June 2020. This was planned and tabled in response to significant changes in projected revenue generation and expenditure channelling in the aftermath of the Covid-19 outbreak, and was aimed at managing and tackling the immediate challenges facing the treasury.

Highlights

Some of the significant highlights from the supplementary budget review include the following:

  • The expectation is that tax revenue collections for 2020/21 will be R304.1 billion (21%) lower than the initial February 2020 Budget estimate (R1.425 trillion).
  • Revenue shortfalls are said to include tax relief measures (R26 billion) in foregone revenue implemented as part of the COVID-19 relief packages, and the expectation is now that the tax base will temporarily shrink as businesses close, and the resultant loss of jobs.
  • No new tax measures/tax increases were presented in the Supplementary Budget; however, moderate future tax increases were proposed. Future tax increases are expected to be R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25.
  • The 2020 Medium Term Budget Policy Statement (due in October 2020) is expected to revisit these projections, and the Minister of Finance will announce tax policy proposals in the February 2021 Budget.
  • Additional tax revenue is expected to come from improved tax collection as enforcement is strengthened to enhance compliance.
  • The budget balance is now expected to widen to 14.6% of Gross Domestic Product (GDP) in fiscal year 2020/21 (February projection was -6.8%) and the Gross National Debt is projected to increase to 81.8% of GDP (February projection was 65.6%). The expansion is mainly due to lower revenue collections and higher pay-outs from the Unemployment Insurance Fund (UIF).

In-year spending adjustments

National Treasury now anticipates spending to increase from the R1,537 trillion expected in the February 2020 budget to R1,573 trillion. The increase represents primarily the assistance provided to state-owned entities, the COVID response efforts and the costs of servicing debt. Although the rise in the overall spending represents a rise of R36bn, the cumulative fiscal response to the pandemic has resulted in additional R145bn of spending. Of this number, R122bn was allocated to the fiscal relief package, R3bn to the restructure of the Land Bank, and R19.5bn to temporary allocations for Covid-19 fiscal aid. National Treasury has been able to reprioritise R109bn, with the remaining R36bn to be funded by increasing the main budget deficit. Government spending was adjusted through the implementation of various measures.

Revenue

The shortfall was higher than was anticipated; tax reprieve initiatives, company closures and lower personal income taxes due to mass retrenchments are projected to result in the current financial year’s R304.1 billion tax shortfall. National Treasury noted that the highest shortfalls had been seen in domestic VAT and Pay-As-You-Earn tax categories.

National Treasury anticipates that tax collections will increase over the medium-term expenditure framework (MTEF) based on improved tax collection. This includes, among others, enhancement of enforced compliance and revenue collection measures which will be introduced, for example, to eliminate syndicated fraud related to value-added tax refunds and import valuations.

Herculean task

Although the supplementary budget painted a more serious picture of the existing conditions, it did not contain much information about how President Ramaphosa’s administration intends to deal with the Herculean task of “closing the mouth of the hippopotamus.” However, The Minister of Finance revealed that more information will be supplied in the Medium -Term Budget Policy Statement (MTBPS) expected in October 2020, on how the government plans to simplify the budget.


Article written by

John Chikoki

Senior Retirement Fund Consultant

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