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<p><strong>By: FNB</strong></p>

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<p><em><strong>The 2020 Budget Review by the Minister of Finance, Mr Tito Mboweni, and the National Treasury provided an update of the South African government’s financial health.</strong> </em></p>

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<p>It continued to point to the urgent need for the timely implementation of much-needed growth-enhancing structural reform to support meaningful and sustainable growth for the South African economy.</p>

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<p><strong>General Overview - Siphamandla Mkhwanazi, Senior FNB Economist</strong></p>

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<p>The Budget also highlighted that chronically poor economic growth continues to put pressure on tax revenue collection. While significant cuts were made to government’s non-interest expenditure, the decision to not raise additional revenue from tax proposals over fiscal year 2020/21 left the budget deficit largely unchanged. As expected, further assistance was offered to state-owned entities (especially Eskom). The fiscus, as it stands, leaves the government between a rock and a hard place, especially as sovereign debt continues to rise at increasingly unsustainable levels.</p>

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<p><strong>Three main points:</strong></p>

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<ul><li>The fiscal deficit remained largely unchanged. The estimate for the main budget balance is expected to widen to -6.8% of GDP in fiscal year 2020/21 before narrowing marginally to -5.9% in 2022/23.</li></ul>

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<ul><li>The main tax proposals were aimed at providing some relief in fiscal year 2020/21 and minimising tax base erosion. Amid some of the major tax proposals, National Treasury’s budget provides some personal income tax relief, limits corporate interest deductions in order to disincentivise profit shifting, and restricts the ability of companies to fully offset assessed losses from previous years against taxable income.</li></ul>

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<ul><li>On government expenditure, significant reductions were made, with R160.2 billion worth of reductions in the public sector wage bill proposed, together with additional cuts to baselines. The proposed total baseline reductions in planned spending amount to R261 billion, but will be partially offset by additional allocations of R111 billion to SOEs.</li></ul>

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<p><strong>Property Reaction - Buyisile Maseko, Growth Head, FNB Home Finance</strong></p>

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<p>To support the property market, the threshold for transfer duties has been adjusted. Properties costing a million rand or less, will no longer be subjected to transfer dues. This will positively impact the prospective buyers and help encourage home ownership in South Africa. With the steady increase in property prices over the past 24 months, this is a welcome relief to individuals wanting to enter the property market. The race threshold for transfer duties, is positive news as it provides some relief for first time owners.</p>

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<p><strong>Tax Proposals Reaction – Chantal Marx, FNB Wealth and Investments</strong></p>

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<p>This Budget Speech actually struck a delicate balance by being both bond and equity friendly. Generally what would happen is an equity friendly budget would not be a bond friendly budget. Equity friendly is usually when expenditures are up and taxes are down which would mean that people have more money in their pockets and this is usually good for markets, particularly for the JSE and South African Inc Stocks. A bond friendly budget usually has a decline in expenditure and higher taxes which means more money is available to bond holders and other people who are owed money by government from a broader debt perspective.</p>

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<p>What happened here is that we saw the expenditure being cut to being more bond friendly because there is more money available in the fiscus to pay debt holders but you also had a stay of execution on tax increases. That was perceived as equity friendly and the reason is that there was a lot of talk in the market over the last couple of weeks of increases in VAT, Wealth Tax, and a new 48% tax bracket and the prescribed assets but none of it materialised.</p>

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<p>This was in line with our view as we thought that following the recommendation of the Davies tax committee, the ascension that we actually met the lafacur that translates in tax no longer being efficient because by increasing tax you are actually increasing expenditure which will result in reduced expenditure which will again result in less taxes coming into government and because of that we thought that there wouldn’t be any meaningful tax increases.</p>

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<p>What surprised us though is that there was an adjustments on bracket increases which means if you were earning more money or you had an increase, you would be pushed into a higher inflation and higher tax bracket which means you would compensated and we thought that government would take that as a easy way of raising revenue. So because of the fact that consumers have more money in their pocket or what was usually expected for the next year, the equity market was impacted positively and stocks rallied and banks were up at almost around 4% just after the Budget Speech and retailers also did well</p>

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<p><strong>Consumer Impact- Ester Ochse: Product Head, FNB Money Management</strong></p>

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<p>A very consumer friendly budget. The first thing we can take out is that there is above inflation tax relief for the consumers. This means at the end of March, you will have little bit more money in your pocket and you can use it to save or pay off some of your debt. The next thing that is important is that there is a slight increase in sin tax and consumers must be careful that it doesn’t pinch their pocket together with the slight increase in fuel levy.  The other good news is that, the annual limit on the tax-free savings account has increased to R36 000 a year, so you can definitely use that to apply to your long-term savings and retirement goals.</p>

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