Budget 2020: ‘It’s time to get our house in order’

In his traditional pre-Budget briefing in Parliament on Wednesday afternoon, Finance Minister Tito Mboweni made it clear – it’s time for a reality check, and it’s time to make sacrifices.

Finance Minister Tito Mboweni in Parliament for his Budget Speech on 26 February 2020. Picture: GCIS.

CAPE TOWN - As Finance Minister Tito Mboweni rises in Parliament to deliver his annual Budget Speech, the documents that underpin his opus paint a picture of an economy in a serious crunch.

Declining tax revenues, continued demand to spend, stubbornly low growth rates, unemployment and a ballooning debt, the interest on which alone chews up more than 15% of all revenue collected.

In his traditional pre-Budget briefing in Parliament on Wednesday afternoon, Mboweni made it clear – it’s time for a reality check, and it’s time to make sacrifices.

“We have to get our house in order, and it’s going to be a difficult process, but we have to get our house in order.”

So, what are the interventions, the sacrifices, and is there any good news?


There are no new tax proposals in this year’s Budget, but if you have vices, you’re going to pay more to indulge them.

Treasury anticipates a tax revenue shortfall of R63.3 billion. That’s considerably higher than the R52 billion estimate delivered in the Medium-Term Budget Policy Statement in October 2019.

Over the past five years, government has implemented significant tax increases, including a one percentage point hike in the VAT rate in 2018.

However, due to persistently low growth and a weakened South African Revenue Service (Sars), actual collections of revenue have declined. Treasury now points to a turnaround in Sars, that will start to close the gap, but the economy has not improved.

With South Africa’s persistently low growth rates, introducing new taxes would worsen the economic situation, and would make life a lot harder for the average South African.

Still, the taxman will have its pound of flesh out of citizens, and where it can raise a little extra cash, it has.

The fuel levy is set to increase by 25 cents a litre. Nine cents of that will go to the Road Accident Fund.

Excise duties on alcohol and tobacco – commonly referred to as sin taxes - increase by between 4.4 and 7.5%. That means if you smoke, you’ll be paying an extra 74 cents per packet of 20. Loose cigarette tobacco goes up by 82 cents per 50 grams, and pipe tobacco by 40 cents per 25 grams.

If you’re a drinker, expect to pay 8 cents more for every can of malt beer you consume, 61 cents more for 750 ml of sparkling wine and 14 cents more for wine.

There’s also a new tax on vaping and one proposed for next year for e-cigarettes.

Heated tobacco products aren’t currently subject to excise duty, so government is introducing a whole new subheading for heated tobacco products in the schedule of excise duties. It will be taxed at 75% of the cigarette excise rate with immediate effect.

Electronic cigarettes that do not contain tobacco, but do contain nicotine or other chemicals, will be taxed from next year.

The levy on plastic bags is also set to rise to 25 cents per bag as of 1 April. That means you’ll be paying 68 cents for a standard plastic bag.

Sars is even squeezing more money out of lightbulbs, with government proposing to increase the incandescent light bulb levy by from R8 to R10.

That’s all in a drive to get people to switch to more energy-efficient lighting.


As the taxman takes away, Sars is also giving a little.

There’s some personal tax relief in the Budget, in the form of a 5.2% increase in the primary, secondary and tertiary rebates, as well as in the personal income tax brackets. This will provide tax relief to individuals who still contribute by far the most to the overall tax collection, amounting to R2 billion.

Government has upped the tax-free threshold from R79,000 to R83,100, which means anyone who earns less than R83,100 a year will not pay tax.

Government is also increasing the value of medical tax credits in 2020/21 from R310 to R319 per month for the first two beneficiaries, and from R209 to R215 per month for the remaining beneficiaries.

That amounts to a below-inflation increase of 2.8%, in line with government’s plan to adjust the credit to help fund the roll-out of national health insurance plan.

Government is raising the annual limit on contributions to tax-free savings accounts by R3,000 to R36,000.


Government is also planning a restructuring of the corporate income tax system, with a view to broadening the base and reducing the rate.

The argument is that South Africa’s corporate income tax rate has remained unchanged at 28% for more than a decade. Several of South Africa’s main trading partners, including the UK, India and the US have all dropped their rate. That makes us relatively less competitive.

Government is hoping a reduction in the corporate tax rate will make the country an appealing prospect for investors, and reduce the incidence of profit shifting.

It will reduce rates in such a way that the reduction has no adverse effect on overall revenue.

As part of the plan, government will minimise corporate tax incentives, and introduce new interest deduction and assessed loss limitations.


Sars projects the revenue shortfall this year will be R63.3 billion - significantly higher than the revised estimate of R52.5 billion announced in the 2019 Medium-Term Budget Policy Statement.

Government blames a weaker-than-expected economy, and lower growth rates for that.

Personal income tax, which is the single biggest contributor to revenue, has been badly affected by sluggish employment and wage growth.

The 2018 technical recession meant the dividends tax has not yielded as much cash as had been hoped. Low growth means lower profits, and that means corporate income tax collection has continued to underperform.

Government has also pointed to a tax system that’s been under severe pressure due to internal leadership shortcomings and governance issues at Sars. It believes the tide is now turning, and that the Revenue Service is on the road to recovery.

It’s promised to publish a discussion document by June this year, outlining proposed amendments to existing laws, aimed at strengthening governance at Sars. These will include improvements to the appointment and removal process of the Sars commissioner.


As Sars struggles to make its revenue targets, and economic growth remains persistently sluggish, the nation is still spending.

The shortfall between revenue and expenditure has to come from somewhere, and that deficit is financed by debt.

There’s no stabilisation of debt on the horizon in the medium term at least.

Currently, the government spends 15.2 cents of every rand it collects just servicing the interest on the national debt.


If it can’t raise more revenue, government has to make tough decisions on spending, and over the next three years government will cut spending to the tune of R261 billion.

The biggest part of that is a R160.2 billion reduction to the public service wage bill.

The proposed cut is a bold signal from government that it’s willing to deal with an out of control wage bill, and bring its single biggest line item under control. Treasury officials indicate that raising R160 billion to cover that bill would require an increase to the VAT rate of more than 2 percentage points.

There will be fewer subsidy houses built, as allocations to human settlements are reduced by R14.6 billion over the next three years. Government is also cutting R2.8 billion from the municipal infrastructure grant that will see slower water and electricity connection rates to poor communities.

Government has also slashed R13.2 billion over the medium term that was meant to go to public transport – the bulk of this was earmarked for the Passenger Rail Agency of South Africa (Prasa).

But because Prasa underspent its budgets in previous years, Treasury is taking them away.

The budget cut will also impact on the planning and implementation of integrated public transport networks. Those processes will be suspended in Buffalo City, Mbombela and Msunduzi. Those are the cities that have made the least progress in launching public transport systems.

There will also be less money around to fix schools, with reductions in basic and higher education infrastructure delaying maintenance and the completion of existing projects.

A reduction in budgeted spend in the Health Department means aspects of the NHI will take longer to come to fruition.

Government has also acknowledged fiscal sustainability means specific programmes need to be cut or trimmed, and state-owned companies need to be actively reined in and reformed.


Government plans to spend R1.95 trillion in 2020/21.

The bulk of that spending goes to learning and culture, with R396.4 billion allocated. Social development gets R309.5 billion and health gets R229.7 billion.

Social grants increase across the board, with the old age grant for those over 75 increasing by R80 a month to R1,880, the disability and care dependency grants increasing by R80 a month to R1,860, the child support grant rising R20 a month to R445.

The fastest-growing budget items over the next three years will be economic, community and social development.

Government has also made various pledges to fund new courts, committing to establishing and staffing 58 new sexual offences courts over the next three years.