Finance Minister Enoch Godongwana delivered his maiden budget speech yesterday with few surprises.
A R181 billion tax windfall, primarily as a result of a commodities boom, has helped to improve the state’s fiscal situation. The increased price of commodities, however, is a short-term trend and prices are expected to taper off.
Declining commodity prices will have a negative impact on tax collections, points out Waldo Marcus, Head of Marketing & Sales at TPN Credit Bureau. “Higher tax collections from the mining industry, for example, has been due to higher commodity prices rather than increased production which was down 1.1% for December 2021 compared to December 2020. This does not auger well for our tax revenue collections when the commodity boom inevitably starts to ease.”
Godongwana did concede that the state cannot plan for permanent expenditure on the basis of short-term increases in commodity prices.
Increased tax collections are also the result of more resilient corporate income and better than expected collections of personal income tax and VAT, said the minister, and has ensured that South Africa’s budget deficit has reduced to 5.7% of GDP rather than the originally anticipated 7.8%. National Treasury projects that the budget deficit will have reduced to 4.2% in 2024.
The good news for taxpayers is that no increase in personal tax or VAT were announced. Neither will there be an increase in the fuel levy. Personal income tax brackets will be adjusted lower by 4.5% to counter the impact of inflation. Now is not the time to increase taxes and put the country’s economic recovery at risk, said Godongwana.
This will be good news for consumers still struggling to recover from the devastating impact of lockdowns imposed in the last two years. Consumers’ financial recovery is particularly evident in property rental behaviour trends.
TPN is the most comprehensive authority on tenant behaviour in South Africa. Its data reveals that the number of residential tenants in good standing with their landlords has still not recovered to pre-pandemic level. “Although the number of residential tenants in good standing improved from 77.6% in the fourth quarter of 2020 to 81.4% in the fourth quarter of 2021, this is still short of the 81.88% recorded in the fourth quarter of 2019, prior to the onset of the pandemic in South Africa,” reveals Marcus.
Godongwana confirmed that the corporate tax rate will drop from 28% to 27% next year, which will be good news for businesses that are still struggling to recover. TPN’s data reveals that the number of commercial tenants in good standing with their landlords has seen an improvement. This figure has grown from 61.62% for the fourth quarter of 2020 to 68.49% for the same period in 2021.
“The fourth quarter of 2021 saw the best rental collections in the commercial sector since the onset of the lockdown. However, while businesses are slowly recovering, some will require assistance,” says Marcus.
Gauteng commercial tenants recorded the weakest rental collections in the sector with only 66.73% in good standing for the last quarter of 2021, while the Western Cape recorded the best performing commercial tenants with 77.31% in good standing with their landlords, he reveals. “What these figures reveal is that some provinces require more stimulus than others,” says Marcus.
Government has announced that it will be launching a bounce back scheme to support businesses that have fallen into distress as a result of the pandemic. The scheme includes small business loan guarantees of R15 million which will be facilitated by participating banks and development finance institutions. Government will underwrite the first 20% of losses for banks and other loan providers. In addition, government will be introducing a business-equity-linked loan guarantee support mechanism which will be facilitated through development finance institutions.
Godonwana announced that education and culture will once again receive the largest share of the government’s budget (24%) with a total of R24.6 billion allocated to provincial education government departments to address the shortfalls in teacher compensation.
TPN’s school fee collections data reveals that although the number of parents who are fully paid up in terms of school fees and are in good standing increased almost 10% between the fourth quarter of 2020 from 54.24% to 64.95% in the same quarter of 2021, the number of parents who made only partial payments or paid late is at the lowest figure seen since 2018.
“The ‘Did Not Pay’ category remains stubbornly high at 21.24%,” reveals Marcus, adding that this means that the number of those still wanting to make some kind of payment is decreasing and is, in fact, moving towards no payment.
“While the allocation made to address shortfalls in teacher compensation is encouraging, government needs to alleviate some of the financial strain that schools feel when parents are unable to pay school fees due to job losses or reduced income,” he says.
