The 2019/2020 budget proposals essentially have only one objective: they take their cue from the disastrous financial and economic performance of Eskom over the past decade. Averting an Eskom default has required an injection of equity capital of R23bn a year for the next 10 years, if necessary, by SA’s now even more hard-pressed taxpayers.
The revenue collected by the central government budget is estimated to increase 9.2%, having grown 7.4% in 2018/2019. Expenditure on a consolidated all-government spending basis, including the extra spent on supporting Eskom’s balance sheet, will be up 9.6%
When compared to expected inflation of about 5%, these represent large real increases and a growing burden on taxpayers, given that the economy is predicted to grow a mere 1.5% in 2019. Personal income-tax collections are estimated to increase R55bn or 11% in the next financial year. This increase occurs without an increase in explicit income-tax rates but with bracket creep. Given inflation-linked increases in employee benefits, it is the many income taxpayers in the lowest brackets who will be paying more — presuming they also keep their jobs.
There are nearly 6.937-million registered taxpayers in the band expected to earn between R79,000 and R500,000 of taxable income each in 2019/2020, out of a total cohort of 7.643-million taxpayers. These taxpayers in the lower brackets will together be paying R100bn more tax this year than if full adjustment of tax rates for inflation of wages had been made. Total income tax expected in 2019/2020 is R554bn.
The few taxpayers who earn more than R1m, only about 283,000 of them, will be expected to deliver R225.6bn of tax or 41% of the total. But bracket creep is much less significant for them, especially for those already paying a marginal tax rate of 45% on incomes over R1.5m per annum.
Clearly, the judgment must have been that the higher income earners are being squeezed about as far as is practically possible without reducing tax revenues collected from them. There are a further 6.369-million individuals registered with the SA Revenue Service who fall below the threshold and pay no income tax. They will, however, pay more tax on the goods and services they can afford. Taxes collected on all goods and services (VAT, excise taxes and customs duties) are expected to rise by an inflation-beating 9.6% in 2019/2020.
These are tax hikes a large majority of the population will experience, which is surely unlikely to find favour with an electorate going to the polls in May. But having to save Eskom required nothing less than a very austere budget. Any thought that the investment programmes of the publicly owned enterprises could lead a revival in economic growth has surely been disabused.
These enterprises provide essential services to the economy and must be able to provide them on globally competitive terms and be financially stable if the economy is to prosper. Any continued failure to do so will demand ever higher and more unpopular taxes on a slow-growing economy. Higher taxes will impede growth further — as they have done to date. The burdens of slow growth are widely shared, as this budget reveals.
The failure of the public enterprises and the inability of the highly paid SA income earner and taxpayer to compensate for such dereliction must surely lead any government subject to the popular will to adopt the obvious solution: privatise the operations of the public enterprises on the best possible financial terms, consistent with a competitive economy.
Private capital and private business are more than up to this task. The question raised by the 2019/2020 SA budget is just when such a fully embraced economic realism will be implemented to save the economy and all who depend upon it.
• Kantor is chief economist and strategist at Investec Wealth & Investment. He writes in his personal capacity.
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