The national budget speech of South Africa was presented on 26 February 2020. In this article, we will be covering the most important points that are in this year’s budget speech.
Firstly we will look at the revenue which amounts to 1 344 796 trillion, this is a 4% decrease from last year’s
“Insanity is doing the same thing over and over again and expecting different results”
There is nothing new in the budget speech that has been tried in the past. The new cabinet by Cyril Ramaphosa was structured in trying to reduce costs but it has not worked and it will not work without prioritising the spending. South Africa is dire need to grow revenue and grow the pie in order to unleash the much needed growth.
Our economy is a consumption based economy, which means our GDP growth is driven by people having money to spend. Therefore cutting public servants’ salary bill may lead to many people not having enough to spend and this will affect our GDP negatively. Increasing sin tax was expected as usual because our government believes in doing the same over and over again while expecting miracles.
History has proven that sin tax does not reduce consumption, instead, it increases the burden for the household which leads them to reduce spending on other household necessities in order to pay for the sin tax as result affecting the GDP negatively since it is driven by spending.
Spending most of the budget in education, social development and Health was also expected, Despite the fact spending does not grow the size of the pie leading in more jobs created and more revenue collected in taxes.
If our government is serious about creating jobs, then they should spend at least a 3rd of what they spend in education on SMMEs and this will result in more jobs created, more revenue collected in taxes, and more people participating and spending in the economy there growing the GDP.
We welcome tax reductions as this results in people having more to spend therefore a positive in trying to grow the GDP. Increasing the social grants is a positive increasing the disposable income for the poor however we are saddened by the low increase in social grants if indeed we are serious about growing economy then many people should have the income to spend in this consumption driven economy.
Increasing fuel levy is counter to to increasing disposable income and it is not a move if you are indeed serious about growing the economy.
To grow the economy government spending must be increased and most of the budget must be spent in areas that will unleash growth and increase the pie. You cannot grow the economy by spending most of the budget education and health which still requires restructuring.
Spend money on small businesses, social grants and infrastructure then you will see the economy growing, revenue growth and even savings will increase. You cannot try to drive saving with R3500 tax free saving while reducing household disposable income.
This is not an incentive to drive economic growth and saving. Our government cannot keep on depending on taxes as the only main source of income. The real problems in SOEs must be addressed for these SOEs to be profitable and we also need modern strategic SOEs that can drive profit.
Our conclusion is that this budget speech is not meant to grow the economy. It is just a continuation of what our government has been doing for a long time and they expect the economy to miraculously grow. Increasing household disposable is what will drive GDP growth.
Allocating a real budget to SMMEs not a laughable R6.5 billion will increase the size of the economy, create more jobs, increase tax revenue and provide real growth to the GDP. Allocating real budget to agriculture and tourism is what will create jobs and grow our economy.
You cannot grow the economy by allocating budget to commissions and no budget to agriculture, tourism and land reform. This budget is not for small businesses and it is not a budget of a government that is serious about growing the economy.