Budget Speech 2019 may be more populist than technical

13 February 2019: With the 2019 South African general election set for the 8th of May this year, there is likely to be significant pressure on Treasury to find ways of reassuring the public and maintaining support for the current government. As such, the upcoming 2019 Budget Speech is expected to contain more populist and political messages than major tax change announcements.

This is according to David French, Director of Tax Consulting at Mazars, who says that it is highly unlikely that new taxes or any major tax rate increases will be announced this year. “In light of the upcoming election, we believe that Treasury could possibly make some announcement aimed at appeasing the general public. What that may be is difficult to guess, but it is likely to be something that could somewhat relieve the tax burden on the general population. At the same time, Treasury will be extremely reluctant to make allowances that could have a noticeable impact on revenue collection.”

A possible example of this would be to raise the inclusion rate for capital gains tax (CGT). “We are not saying that this is what will happen, but it is something that would appear to be hitting the rich, while in reality would not collect much additional revenue for Treasury.”

French goes on to say that, in line with the pressure to maintain voter confidence, the growth rate that Treasury will predict for the South African economy will probably be optimistic.

He adds that Treasury is expected to take advantage of the bracket creep effect again this year. “The personal income tax rates are probably going to stay the same, with Treasury taking advantage of the fact that more people will move into higher tax brackets when they receive their annual salary increases, even if those increases are merely in line with inflation. While the middle and lower tax brackets may see adjustments closer to inflation, the upper tax brackets will possibly see some upward adjustment, but not too much. Something like this also usually bodes well for Treasury’s public perception, since it seems like they are looking out for the lower income classes.”

Another reason why this year’s Budget Speech will likely not see any major tax announcements, says French, is because tax rates are reaching their peak. “There are no more innovative ways left for Treasury to raise more revenue through taxes. This has been discussed for quite a few years now and it is generally believed that any further increases in the major tax classes could prove counterproductive.”

As a result, French forecasts that Treasury will have to focus on substantially improving the efficiency of the South African Revenue Service (SARS), as well as to plug all of the major revenue holes – such as the unnecessary expenditure at our state-owned entities. “Any announcements in this regard will be welcomed, and we hope to see the Minister take a more severe stance on needless expenditure in the public sector.”

Lastly, there are some announcements that South Africans can count on once again. “Many of the usual incremental increases are to be expected. The fuel levy and sin taxes are bound to rise – though this will not be enough to fill the revenue gap. The health and education sectors will also continue to need support, so we probably won’t see any funding cuts there. In fact, they may even need additional expenditure,” he says.  

“What this means is that, unless there is some radical change (which we do not expect to see in 2019), revenue collection will likely fall short of expenditure again this year, and Treasury will once again be forced to increase the country’s debt,” French concludes.