When delivering the micro-budget in November, the recently appointed Minister of Finance, like his boss Cyril Ramaphosa, admitted to being concerned about the state of the economy.
At this point, he is doing everything he can to instil hope. Based on the premise that there can be no confidence without hope Without confidence, investment does not occur. Even the 2022 Budget’s aspirations for moderate productivity expansion will be difficult to meet if investments are not made.
Because South Africa has been under siege for so long, political commentators are quick to conclude that President Ramaphosa and the man who effectively serves as his FD, Gondongwana, are fighting a losing battle. Are they hawking a critical intangible like it’s a last-ditch Hail Mary?
A Positive Perspective
Even taking into account that many of us have a positive attitude that leads us to look for the light instead of the darkness, there are compelling reasons to dismiss the pessimists. South Africa has had some extremely difficult years, the most notable of which were the losses of State Owned Enterprises, Covid, and the July Riots. South Africa’s fortunes, however, appear to be improving.
National tax receipts were R182 billion higher than expected for the same period the previous year, thanks to an unexpected and extremely welcome cash windfall. To put this in context, the Finance Department would have needed a 6% increase in VAT to achieve the same level of bottom-line performance (or an identical increase in personal income tax rates).
The most major contributor was an increase in corporate income tax, the majority of which was due to the effect of the commodity market price boom on mining company revenues. As a result, even if you are unaware, all South Africans have a vested interest in achieving the desired Super Cycle. This is something that every South African desire.
Even More Encouraging is How the Windfall is Being Used
Indeed, a fraction of the R44 billion was already spent on “Covid-19 relief” in the form of an extension of social subsidies, and another portion has been spent on the direct costs of the July Riots. Cynics, on the other hand, may have expected a much larger allotment to any vote-catching measures in light of the ANC’s poor performance in the November elections. Maybe not yet.
Dondo Mogajane, the Treasury’s more assured director-general, has asserted that the majority of the R182 billion windfall will be used to reduce the government’s borrowing for this year. To put it another way, the mountain of debt will not grow for the first time in well over a decade.
That represents a significant shift. Furthermore, substantial proof that South Africa is now seriously willing and able to confront Zuma’s legacy of a debt-to-GDP ratio that rose from 26% to more than 50% during his regrettable presidency. During Zuma’s presidency, this ratio skyrocketed. As a result of recent difficulties, one has risen above 70%.
The Budget’s meagre R5.2 billion in direct tax relief reflects the country’s newly discovered fiscal conservatism. A little more than half of this relief comes from an anticipated but neglected “non-adjustment” to the fuel tax, while the remaining R2.2 billion comes from a 50% increase in the employment tax incentive, bringing it up to R1,500.
Furthermore, to mitigate the impact of fiscal drag, the tax tables have been reduced by 4.5 percent for a total of 13.5 billion rands. Sceptics will argue that in an inflationary environment, this is the obvious thing to do. However, as we’ve seen in recent years, the Treasury Department’s policy is far from fixed.
How About the Issue That Everyone is Talking About, the Public Sector To Pay The Bill?
In recent budgets, there has been more advanced and powerful footwork on this front than when Mohammed Ali was at the pinnacle of his career. Among them was a much-touted early retirement plan that no one ended up using. Godongwana, for his part, claims that the company intends to “restructure” the compensation packages in the same way that any other employer would. We’ll know soon enough whether he’s more successful than those who came before him. Finmin and his team will meet with representatives of organised labour at the end of March.
The resolute response to a question we posed about retaliation for the transnational professional partnerships that facilitated state capture, was the aspect of the exercise that gave us the most reason to be optimistic. According to several sources, Bain, which has its headquarters in Boston, is still marketing its products to various government departments.
Relax Once More
They will be forced to face the consequences of their actions very soon. Not only Bain, but also McKinsey, KPMG, SAP, and others, in addition to multinational law firms that have so far been successful in avoiding public scrutiny.
According to those in charge of South Africa’s national treasury, paying back illegally obtained fees is far from sufficient. The country will seek reimbursement for the actual costs incurred as a result of these multinational corporations’ actions on behalf of their dishonest customers.
Godongwana’s suddenly relaxed attitude may be due, in part, to the belief that the city is about to experience another commodity boom of epic proportions. The SA is certainly overdue. And, to get right to the point, why not?
According to various sources, the cost of State Capture could have ranged between one and two trillion rands. Even a tiny proportion of that would be enough to replicate the 2022 surge, which made this year’s financial plan the least stressful in well over a decade. From the perspective of the African National Congress, a beneficial card for vote collection in the run-up to the crucial National Election in 2024.
