Budget Speech 2022: The good and bad – Godongwana’s maiden address summarised

Finance Minister Enoch Godongwana delivered his first full budget speech to South Africa from the Good Hope Chamber in Parliament on Wednesday, 23 February.

GODONGWANA CONTINUES WHERE RAMAPHOSA LEFT OFF

Godongwana said his speech reiterated what President Cyril Ramaphosa made clear in his State of the Nation Address earlier in February – South Africa needs to strike a balance between saving lives, livelihoods and supporting economic growth.

“In the 2021 MTBPS we committed ourselves to charting a course towards growth and fiscal sustainability. This budget reasserts this commitment,” said the finance minister.

The highlights of the speech include more spending on the vulnerable population and service delivery. There is also some tax relief. Residents will no doubt be disappointed – but not surprised – that sin taxes have increased.

BUDGET SPEECH 2022 SUMMARISED

THE GOOD

• Robust South African Revenue Service (SARS) continues to rake in more revenue than expected.

“Tax collections since the time of the MTBPS have been much stronger than expected. We now estimate tax revenue for 2021/22 to be R1.55 trillion.

“This is R62 billion higher than our estimates from four months ago, and R182 billion higher than our estimates from last year’s Budget.

• More money dedicated to public employment

“Over the medium-term, R76 billion is allocated for job creation programmes. In this Budget an additional R18.4 billion is made available for the Presidential Employment Initiative.”

•  More money to support basic and higher education and healthcare

The National Student Financial Aid Scheme is receiving an additional allocation of R32,6 billion to support current bursary holders and first-year students.

The provincial education departments will be bolstered with an additional R24,6 billion to address shortfalls in the compensation of teachers.

“An additional R15.6 billion is allocated to provincial health departments to support their continued response to COVID-19, and to bridge shortfalls in essential goods and services.

R3.3 billion is allocated to absorb medical interns and community service doctors.”

• Police, justice system and courts also receive further backing

“R8.7 billion is added to the Police budget.

“The department is allocated R1 billion to implement personnel reforms.”

The Department of Justice and Constitutional Development’s budget is increased by R1,1 billion and the Office of the Chief Justice will receive nearly R40 million more.

• More social assistance, SRD grant extended by further year

The Department of Social Development received the largest spending allocation with R58,6 billion over the medium term, said Godongwana in his budget speech.

The allocation will be used to create a new extended child support grant for double orphans. The minister said this is to encourage the care for the orphans within their families instead of foster care.

The allocation will also be used to fund inflationary increases to permanent social grants.

For the 2022/23 fiscal year, the old age, war veterans, disability and care dependency grants, will increase by R90 in April and a further R10 in October.

The foster care and child support grants will increase by a once-off R20 in April; R44 billion is allocated for a 12-month extension of the R350 social relief of distress (SRD) grant.

• “Now is not the time to increase taxes and put the recovery at risk!”

Personal income tax brackets increase by 4,5 percent – in line with inflation.

“The employment tax incentive will be expanded through a 50 per cent increase in the maximum monthly value to R1 500. I encourage small and medium firms to take up this incentive. We anticipate that the expansion will provide additional support worth R2.2 billion.”

• Fuel levies remain fixed

Godongwana said the inland petrol prices hit highs of more than R20 per litre in 2021, therefore, to provide some relief to households the general fuel levy on petrol and diesel would remain unchanged for 2022 to 2023.

“This will provide tax relief of R3.5 billion to South Africans. There will also be no increase in the Road Accident Fund levy.”

In the budget speech, the finance minister said he and Energy Minister Gwede Mantashe have agreed that a review of all aspects of the fuel price is needed and work is underway.

THE BAD

• Global and domestic outlook worse than expected

Godongwana said the world economy is expected to grow by 4,4 percent this year, which is lower than the 4,9 percent he anticipated in the MTBPS.

“The Omicron variant of the coronavirus caused many countries to impose restrictions to manage its spread.

“In addition, continued imbalances in global value chains have limited the pace of the world’s economic recovery.

“The South African economy has not been insulated from these global developments.

“We have revised our economic growth estimate for 2021 to 4.8 per cent, from 5.1 per cent at the time of the MTBPS.”

• South African debt burden remains a matter of concern

“This year, government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term.

“This huge sum is owed to lenders domestically and around the world! It incurs large debt-service costs; averaging R330 billion annually over the MTEF.

“These costs are larger than spending on each of health, policing or basic education.”

• Risks to fiscal framework

Godongwana said although the fiscal outlook has improved it is still subject to risks. He said these risks could see increases made in tax in future.

The risks include, slowing domestic and global economic growth; the calls for a permanent increase in social protection beyond the available resources; pressure from the public service wage bill and continued requests for bailouts from State-owned enterprises like Eskom.

• 175 out of 257 municipalities in financial distress

The finance minister said basic municipal services require more support, especially for the poor. To this end, R28,9 billion was added to the local government equitable share.

“These funds must be used for the purpose they are meant for. Currently 175 out of 257 municipalities are in financial distress. We stand ready to work with Parliament and all oversight bodies to hold municipalities accountable for delivering these services.

“At the same time, our municipalities and other institutions cannot survive if they don’t receive payment from those who consume their services.”

• Sin taxes increase

Excise duties on alcohol and tobacco will increase by between 4.5 and 6.5 percent.

The increases mean that as from today:

• A 340ml can of beer or cider will cost 11c more;
• A 750ml bottle of wine will be 17c more expensive;
• A bottle of sparkling wine will cost an additional 76c;
• And a bottle of spirits will be R4.83 more expensive;
• A packet of cigarettes will cost an additional R1.03;
• 25 grams of piped tobacco will cost an extra 37c; and
• A 23 gram cigar will be R6.77 more expensive.

In the budget speech, Godongwana said the government will also propose a new tax on vaping products of at least R2,90 per millilitre from 1 January 2023.