The 2019-2020 Budget proposals have essentially only one objective. They all 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 R23b a year for the next ten years- if necessary – by now even more hard pressed South African taxpayers.
The revenue collected by the central government budget is estimated to increase by 9.2%, having grown by 7.4% in 2018-19. Expenditure on a consolidated all government basis expenditure, including the extra spent on supporting Eskom’s balance sheet will be up by 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 by a mere 1.5% in 2019. Personal income tax collections are estimated to increase by R55b or 11% in the next financial year. This increase in collections occurs without an increase in explicit income tax rates but with bracket creep. Given inflation linked increases in employment benefits it is the many income tax payers in the lowest brackets who will be paying more. Presuming they also keep their jobs.
There are nearly 6.937 million registered income tax payers who are expected to earn between R79000 and R500,000 of taxable income in 2019-20 out of a total cohort of 7.643 m income tax payers altogether. These many income taxpayers in the lower brackets will together be paying R100 billion more income tax this year than if full adjustment of tax rates for inflation of wages been made. Total income tax expected in 2019-20 is R554b. The very few 283,000 income tax payers who earn more than R1m, will be expected to deliver R225.6b of income tax or 41% of the total. But bracket creep is much less significant for them, especially for those already paying a marginal income tax rate of 45% – for incomes over R1.5m per annum.
Clearly the judgment must have been that the higher income earners are being squeezed about a far as is practically possible to do without reducing tax revenues collected from them. There are a further 6.369m individuals registered with SARS 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 service (VAT, Excise taxes and customs duties) are expected to rise by an inflation beating 9.6% in 2019-20.
These are increases in taxes on a very large majority of the population that are surely unlikely to find favour with an electorate going to the polls in May 2019. But having to save Eskom required nothing less than a very austere budget. Any thought that the investment programmes of the publicly owned enterprises can lead any revival in economic growth has surely been disabused. These enterprises provide essential services to the economy 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 unpopular taxes on a slow growing economy. And higher taxes will impeded 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 failures, must surely lead any government, subject to a popular will, to adopt the obvious solution. That is to privatise the operations of the public enterprises on the best possible financial terms consistently with a competitive economy. Private capital and privately business are more than up to this task. The question raised by the 2019-20 SA Budget is just when will such a fully embraced economic realism save the economy- and all who depend upon it