“The ACDP expects a more pro-growth budget which is necessary given the expected reduction in projected economic growth from the March 12 budget (of 1.9% of GDP to about 1.5% of GDP). This will have a significant impact on revenue projections, which when taken with the R13.5bn revenue gap caused by the welcome move of removing the VAT increase, will result in a higher budget deficit, hopefully not more than R20bn to R30bn.
We expect that accelerated structural reforms in the electricity and logistics sectors will result in improved economic growth. This is crucial to create jobs and to address escalating the budget deficit and deteriorating state finances. We also trust that President Ramaphosa’s meeting with US President Trump this week will succeed in restoring the trade relationship between South Africa and the US and contribute to the extension of the African Growth and Opportunities Act (Agoa) trade agreement. The agricultural, automotive and manufacturing sectors will be the most severely impacted should Agoa not be extended and these sectors lose Agoa’s tariff-free access to the US. We note that trade tariffs of between 25%and 30% have already been imposed on certain imports from South Africa (albeit that these tariffs have been temporarily suspended).
We are trusting that government borrowing will not need to be increased due to the budget shortfall as government debt is already expected to be 76.2% of GDP, much higher than 60% of GDP, which is the maximum sustainable debt ratio recommended for an emerging market economy. The rapidly increasing debt service costs (estimated at R424.9bn) are crowding out much needed expenditure on other budget items such as on infrastructure, health, education and fighting crime. Other measures need to be found to make up the shortfall.
While we do not expect an increase in personal or corporate taxes to meet this revenue shortfall, we do expect a moderate increase in “sin taxes” on liquor and alcohol. There may also, regrettably, be an increase in the fuel tax levy (which was not increased in the February budget). The previous indirect taxes such as not adjusting tax brackets for inflation (bracket creep) and not adjusting medical aid tax credits will probably remain as is.
We also expect SARS to collect more revenue in view of the additional funds allocated to it. There are an estimated 150 000 taxpayers who are not registered or have not filed tax returns despite substantial economic activity. In addition, SARS can expect higher revenue from the gold mining sector due to the increased gold price.
The ACDP has also consistently called for a reduction in irregular, wasteful and unnecessary government expenditure, and we trust that the many spending reviews conducted by National Treasury over the years will be implemented, including the removal of “ghost” workers in the civil service.
That having been said, we will not support a reduction in expenditure on necessary frontline services, such as health, education and the criminal justice sectors. We are also cognisant of the desperate plight of the South African National Defence Force, and the need for additional funding to restore its full capabilities.
Lastly, taxpayers rightfully expect value for every rand spent by government. This has been sorely lacking in the past. We trust that this budget will start ensuring taxpayers receive the services they pay for and deserve.”
