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2021 BUDGET ANALYSIS AND COMMENTARY

Building up to every Budget Speech, it is always said by many commentators political as well as economical that, since the global economic meltdown following the financial crisis, the Finance Minister faces a tough decision of striking a balance of the conflicting priorities of the nation. The 2021 budget was no different.

 

 

On 24 February, Minister of Finance Tito Mboweni delivered his 2021 Budget Speech amid a difficult climate of COVID-19 pandemic, economic uncertainties, and a high level of youth joblessness. The underlying theme of the budget speech was about “hope” which has been described as the ability to see that there is light despite all the darkness, a quotation from Nobel Laureate, Archbishop Emeritus Desmond Tutu. We provide here the analysis and the commentary of some of the major budgetary items:

 

2020 Projected tax revenue versus projected actual

In the 2020 Budget, the gross tax revenue for 2020/21 was projected to be R1.42 trillion. Due to the impact of the Covid 19, it is now expected that the gross tax revenue will be 10.6 per cent lower than in the previous fiscal year and R213.2 billion lower than projected in the 2020 Budget.

In his supplementary Budget delivered on 24 June 2020, Minister Mboweni expected to miss the tax revenue target by R300 billion. Fortunately, the shortfall is expected to reduce to R213.2 billion as a consequence of the easing of the lockdown which caused a recovery in consumption and wages between October and December 2020. The shortfall was further reduced by better than expected collection of provisional tax payments mainly from the mining sector as a result of the sector experiencing favourable foreign exchange rates and high commodity prices.

2021 Projected revenue

The main tax revenue for the 2021/22 fiscal year is projected to be R1.35 trillion or 25.3 per cent as a share of Gross Domestic Product (GDP).

The attainment of this tax revenue target is based on the assumption that South Africa will achieve a real economic growth of 3.3% for 2021. The ability of the Treasury to correctly project the performance of the economy has a bearing on whether the tax revenue will be collected or not.

Previously, the Treasury’s assessment of the economic outlook was not significantly close to the economic realities which were subsequently experienced by the country. For instance, in the 2019 budget Treasury projected that economic growth of 1.5% will be achieved but in reality, growth of 0.3% was achieved.

Some of the key drivers of the country attaining the projected economic growth are the country’s ability to vaccinate as many people as possible before winter in order to avoid another possible hard lockdown. Implementation of the government’s plan to reform the economy in particular, includes the supply of electricity, access to affordable digital services amongst other areas of priority listed by the National Treasury. For reasons which are obvious, we have deliberately not done the comparison between what was projected for 2020 and what the actual result was due to the fact that no one would have reasonably assumed the emergence of the Covid 19 pandemic.

PERIOD

2019/20

2020/21

PIT

552,9

546,8

VAT

360,5

360,6

CIT

229,6

230,2

C & E

106,8

112,7

OTHER

89,5

91,8

FUEL

83

83,4

RBN

1422,3

1425,5

 

PERIOD

2019/20

2020/21

PIT

39,8%

38,4%

VAT

25,3%

25,3%

CIT

16,1%

16,1%

C & E

7,5%

7,9%

OTHER

6,4%

6,4%

FUEL

5,8%

 5,9%

 

 

ECONOMIC OUTLOOK

MAIN TAX PROPOSALS