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“South Africa faces the largest tax shortfall on record”, this was the core message of Minister of Finance, Tito Mboweni’s, 2021 budget speech. According to the employers’ association, NEASA, this shortfall in national income points to a continued contradiction in the management of the country’s finances. According to NEASA’s CEO, Mr Gerhard Papenfus, the budget makes a false attempt to assist taxpayers, while public spending levels continue. The fact that, according to Minister Mboweni, “we owe a lot of people a lot of money” shows Government is aware of this risk, yet they are continuing on the current path.
Companies and individuals will seemingly benefit from the lower tax rates. The reduction of corporate deductions and increases in consumption taxes will mean that the effect of “lower taxes” will be muted, with an added risk of future pressure on inflation and interest rates. The state has no plan to cease its public and social employment initiatives. The Minister plans to continue directing tax revenue flows into these unsustainable, wasteful schemes – including State-Owned Enterprises (SOEs).
As stated by Papenfus, a comprehensive cost-benefit analysis of SOEs is urgently needed. “We need to honestly assess what SOEs contribute to South Africa’s society and economy”.
NEASA hoped that the Budget 2021 would have announced such an initiative. On the contrary, National Treasury plans on honouring its financial support to the failing SOEs such as Landbank, Eskom, SAA, etc. “Alternative solutions, such as privatisation, public-private partnerships or policy changes must be considered and implemented”, commented Papenfus.
The Minister failed to extend the Section 12J Income Tax initiative. “The absence of this attraction offered to venture capital investment companies, will negatively impact job growth in the country”, confirmed Papenfus.
Government’s approach to its citizenry’s earnings has been summarised by the Minister’s words: “Render unto Caesar what belongs to Caesar”. This reflects an attitude that the income generated by hard-working business owners and workers are “owned”, at least in part, by Government. This is a fundamental failure in the assessment of the current economic pressures we face and the mood of the people.
The 2021 Budget attempted to serve two masters: the market forces and ideology. Government needs to decide if it will bend towards sound fiscal management to set the country on a sustainable growth path, or continue to serve its ideological master – which dictates out of control expenditure. This creates business risk and uncertainty limiting direct investment into the economy.
The 2021 Budget indicates that business should brace itself for continued uncertainty.