What Budget 2020 means for consumers in general and property in particular.
In his 2020 Budget Speech on February 26, Finance Minister Tito Mboweni warned that the year ahead would continue to be a challenge for the South African economy and the public.
As is his custom, the minister started with a reference to the Aloe Ferox plant on his podium.
“Aloe Ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it. We have it within ourselves to be the best in the world. Congratulations to Miss Universe Zozibini Tunzi and the Springboks. Our economy has won before, and it will win again,” said Mboweni.
Forecast for 2020
Mboweni forecast that the South African economy will grow by 0.9 per cent in 2020 and inflation will average 4.5 per cent.
Over the next 18 months, the economy should get a number of jump starts:
- The fruits of the reform agenda led by the President;
- Lower inflation;
- The interest rate reduction earlier this year;
- The recent gains in platinum group metals prices;
- The impending change to the electricity regulatory framework;
- The tax proposals contained in the Budget.
However, persistent electricity problems will hold back growth. Over the next three years, growth is expected to average just over 1 per cent a year. Therefore, a stable supply of electricity will be Government’s number one task.
Overall
In the fiscal year to the end of February 2021, the State’s revenue is projected to grow by 4.9% to R1.58 trillion (29.2% of GDP) with expenditure of R1.95 tn. This leaves a consolidated budget deficit of R370.5 bn, or 6.8% of GDP. Gross national debt is projected to be R3.56 tn, or 65.6% of GDP by the end of 2020/21.
State spending exceeded the Budgeted figure by R17bn. In the years ahead government spending is expected to grow at an average of 5.1% a year, mainly due to rising debt servicing costs. Treasury is budgeting for non-interest spending to fall in real terms.
To support growth, no major tax increases were proposed, and there is some real personal income tax relief. Tax payers who earn R10 000 a month will pay 10 per cent less in tax, and those earning R100 000 a month will pay about 1.5 per cent less.
There are also proposals for broadening the corporate income tax base. This additional revenue will be used to reduce the corporate tax rate in the near future to help businesses grow.
Mboweni said: “Start-ups will ignite the economy. The tax system supports them in a number of ways, including the preferential small business tax regime, the VAT registration threshold and the turnover tax. We will review these to improve their effectiveness while at the same time reducing the scope for fraud and abuse.”
Property
The threshold for transfer duty on property has been raised to R1 million.
Crispin Inglis, chief executive of PropertyFox, a consumer-first digital real estate agent, says that while consumer spending is still under pressure, the no transfer duties payable on property up to the value of R1 million is great news.
“Not only are individuals going to be receiving some personal income tax relief, but the higher transfer duty threshold will give many an opportunity to get a foot on the property ladder. Ramping up these opportunities for first-time buyers, especially, could have an important impact on a pervasively stagnant property market.”
Dr Andrew Golding, chief executive of the Pam Golding Property group said: “The increase in the transfer duty threshold provides a very positive incentive for first-time home buyers as well as others seeking affordably priced homes – a sector which represents a key driver in the current market.
“It will help stimulate property transactions in this price band, increasing volumes and creating a ripple effect across the market in general – which will in turn benefit government income generation.
It is also pleasing to see that the Help to Buy scheme has assisted over 2 000 families to buy their own homes.
Mboweni explained that for every R1 subsidy provided by government, the scheme crowds in R8 from the private sector. In a single year, the Help to Buy scheme has supported nearly R1 billion in new lending.
Other highlights
- To adjust for inflation, the fuel levy goes up by 25 cents a litre, of which 16 cents is for the general fuel levy and 9 cents is for the Road Accident Fund (RAF) levy.
- Despite this increase, the liabilities of the RAF are forecast to exceed R600 bn by 2022/23. Government needs to take urgent steps to reduce this risk to the fiscus and bring about a more equitable way of sharing these costs. One option is to introduce compulsory third-party insurance for all motorists.
- The carbon tax and other measures will help green the economy, and will bring in R1.75 bn over the next few months. This will be complemented by more focused spending on climate change mitigation.
- The new State Bank is ready to launch as a retail bank operating on commercial principles. It will be subject to the Banks Act, and will have “an appropriate capital structure and performance parameters on investments and loan impairments.”
- South Africa’s Sovereign Wealth Fund has been created with a target capital amount of R30 bn (US$2 bn). A relevant bill will be submitted during the course of this Parliament. Possible funding sources include proceeds of spectrum allocation, petroleum, gas or minerals rights royalties, the sale of non-core state assets, future fiscal surpluses and money set aside from future budgets.
Conclusion
“A sound macroeconomic framework always lays the foundation for growth. Budgets are complex, but the numbers are simple. The numbers show that we have work to do,” said Mboweni.
