Budget Speech 2022

 

Finally, South Africans can breathe a sigh of relief as Finance Minister, Enoch Godongwana, released a welcoming 2022 Budget Speech on 23 February 2022. The budget speech consisted of many surprising decisions ultimately beneficial to the majority. Godongwana estimated that R182 billion rand more tax would collect than expected in the 2021 budget. Let’s dissect how.

 

The budget allocation looked very familiar as the education and culture sectors will once again receive the largest share of the government budget (24%), with the bulk of the spending going towards basic education. Social development (18%) and health (14%) are the other large allocations. Some of the other notable grants include R3.3 billion to absorb medical interns and community service doctors, and R8.7 billion was added to the Police budget, which will be used in part to appoint  12 000 entry-level constables.

 

The biggest gainers, according to Bloomberg, is Motorists, Middle-Income taxpayers, SMME and Welfare recipients. This is due to the minister not increasing deductions for the general fuel levy and Road Accident Fund for the first time since 1990. With the oil price rising at pump fuel costs due to several factors such as the Russian-Ukraine war that has surged the oil price over the $100 mark. The tax percentage of a litre of petrol falls from 41% to 34% and diesel from 45% to 38%. This ratio is below the Europe average of 60%. 

 

 

Godongwana gave tax income earners some space to breathe as he adjusted the personal income tax brackets and rebates downwards by 4.5%. This move neutralised the impact of inflation that pushed taxpayers into higher brackets. As a result of these adjustments, the level where income tax now starts becoming payable increases to R91,259 per annum (R7,679pm). He also agreed to increase the Monthly social grants by 1.9% for foster care grants and 5% for old age, care dependency and disability.

 

Although SA’s corporate income tax rate still significantly exceeds the OECD average of 23%. The tax rate will be reduced to 27% from 28% for companies with tax years ending on or after 31 March 2023. 

 

Amid the good news, some sectors weren’t entirely happy. The biggest upset was the alcohol and tobacco sectors as sin taxes will increase. Some notable increases are Spirits (increase by R4.83 per 750ml bottle), Cigars (increase by R6.77 per 23g) and cigarettes (an increase of R1.03 per pack). The government also plans to introduce a new tax on vaping products of R2.90 per millilitre from January 2023. It delivers an estimated R400m more from alcohol and R100m via tobacco duties. The carbon tax rate increased from R134 to R144 per ton from 1 January 2022. 

 

The biggest worry in our economy today is the government debt sitting near danger levels. It has reached R4.3 trillion and is projected to rise to R5.4 trillion. On average, 20 cents of every rand collected in government revenue is now being spent on debt repayments, crowding our spending on health and education. A new approach has been taken towards government borrowing, meaning that South Africa will reduce its borrowings for the first time since 2015. This year, it will borrow R135.8 billion less than planned.

This will help stabilise its debt ratio at 75.1% of GDP by 2024/25, which is still not the ideal economic situation. However, the government now expects to achieve a primary surplus – where revenue exceeds non-interest expenditure – by 2023/24.

 

With the resilient international markets combating war fears, I am pleased with the government’s spending plan and a new outlook on funding for State-Owned Enterprises. The allocations (if not disappearing through corruption) can certainly positively impact the surface level. Our economy is in a dire situation and needs all the push it can get.

 

Link to Budget Speech 2022:

 

http://www.treasury.gov.za/documents/national%20budget/2022/speech/speech.pdf

 

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