Mboweni’s budget provides some relief

Published Date: 2021-02-25 | Source: Stephen Gunnion | Author: Stephen Gunnion

The budget has reversed some of the tough measures that were presented in the Medium-Term Budget Policy Statement in October.

Finance Minister Tito Mboweni has cancelled a plan to increase personal taxes by R40 billion over the next four years to help support an economy that has been hit hard by Covid-19. The Minister had some leeway after revenue collection for the year came in almost R100 billion higher than projected last October.

Presenting his budget for the 2021/22 financial year yesterday, Mboweni said the plan to raise taxes, proposed in his Medium-Term Budget Policy Statement (MTBPS) in October, would put further strain on the economy. He also raised personal income tax brackets by 5%, higher than inflation, which he said would provide R2.2 billion in tax relief by reducing the tax burden on lower and middle-income households. The corporate income tax rate would be lowered to 27% from 28% from next year.

Making up for some of the tax cuts, fuel levies were raised by 27c a litre and excise duties on alcohol and tobacco products were increased by 8%, adding 14c to a can of beer, 26c to a bottle of wine and R5.50 to a bottle of spirits. A packet of cigarettes will cost an extra R1.39.

Mboweni said National Treasury was allocating more than R10 billion for the purchase and delivery of Covid-19 vaccines over the next two years. It had also increased the contingency reserve from R5 billion to R12 billion to make provision for the further purchase of vaccines and to cater for other emergencies. Extra allocations were made including R31.7 billion to Eskom to help it service its debt and R5 billion to the Landbank.

Due to higher than expected revenue for the year, the budget deficit has come in better than predicted in last year's Medium Term Budget Policy Statement. Instead of 15.7% of GDP it will now be 14%, reducing over the next three years. Total government debt is now expected reach 80.3% this year before peaking at 88.9% of GDP in 2025/26 compared with the 95.3% previously forecast.

After probably shrinking by 7.2% last year, Mboweni said the economy may grow by 3.3% this year and 2.2% next year.

TreasuryONE said the predicted growth rates were way too low to make a dent in unemployment and lift people out of poverty.