Budget 2019: The year of the aloe ferox

The South African Budget was determined for the pocket of the average citizen, said Finance Minister Tito Mboweni in a Justmoney interview right before he delivered the National Budget Speech in February.

“If I had it in my power, I would reallocate greater budgets to the railway agencies as opposed to insolvent SOEs such as South African Airways (SAA). These are the kinds of conversations we need to start having at government level,” he added.

While this year’s budget speech was more geared towards achieving economic and revenue growth, Lesetja Kganyago, SA Reserve Bank Governor, agrees that it also took the financial struggles of the low-income South African consumer into account.

“It cannot be considered an achievement if any of our goals are met at the detriment of struggling South African consumers. Those are the people we serve and those are the people we must be accountable to. They are also the people we rely on for co-operation to restore our country and its finances,” said Kganyago.

The National Budget Speech is arguably one of the most pivotal events before a general election and during a ratings agency assessment period. This year’s speech was a culmination of setting goals for renewing economic growth, restoring Eskom, with consumers paying more for alcohol, tobacco, and fuel.

During his speech, Mboweni compared the South African economy to an aloe ferox plant with its “innate resilience”. But what does it mean to the average South African consumer?

Justmoney breaks down how the Budget Speech announcements could affect your money. 

1.The allocation of R23 billion to Eskom

This is meant to assist with operational improvements and debt servicing.  

While this may seem like information you may simply shrug off, Mboweni said that had the government not stepped in as Eskom’s primary shareholder, the insolvent SOE would be forced to potentially push for a higher tariff increase.

This comes after Phakamani Hadebe, CEO of Eskom, applied for a 15% higher electricity tariff increase for the 2019/20 financial year. This is in process and it has not been approved yet.

Mboweni added that although Eskom will not become privatised, the government is considering dividing it into three entities. These divisions include the generating division, the national grid or transmission, and the distributions side.

“A key reason for the split is also to allow for competition within the electricity generation and distribution sectors. This will affect price and accountability, and ultimately count in every consumer’s favour both in terms of service delivery and price,” Mboweni said.

According to professor Raymond Parsons from the North West University School of Business and Governance, while the vision for Eskom is a noble and necessary one, it is a long-term play. This means that consumers may only feel the promised price relief in years to come. Until then a lot of compromises have to be made as the growth rate decreases and the tax burden increases.

“However, the plus side is that in order to compensate for the large Eskom funding allocation, government have been forced to revise state spending even further,” Parsons said.

2. SARS to appoint a new commissioner

In order to improve governance within the institution and addressing the tax shortfall that resulted in a R15,4 billion downwards revision, a new commissioner will be appointed.

“Once SARS is back on its feet, South Africans can expect an efficient tax service that plays to everyone’s best interest. Currently we have a flawed tax collection system that is taking money out of the pockets of some while others simply benefit,” Mboweni said.

3. Excise duties on alcohol and tobacco products are set to increase

Above inflation increases of 7,4% and 9% respectively are set to raise R1 billion in revenue.

Of the most notable increases were that the excess duty on a pack of 20 cigarettes will go up by R1,14 to R16,66. Duty on a bottle of whiskey will rise by R4,54 to R65,84, while a bottle of sparkling wine will increase by 84 cents.

4. Additional zero-rating for VAT items

Mboweni took the opportunity to announce that the list of zero-rated items would be expanded to include white bread flour, cake flour, and sanitary pads. This joins the list of zero-rated items included in last year’s speech.  

This is to offer some much-needed relief to low-income households who are already cash-strapped and buckling under financial pressure.

5. Fuel levies to increase per litre for petrol and diesel

“The general fuel levy will be increased by 15 cents per litre for petrol and diesel from 3 April 2019,” Mboweni said.

The increase is slightly below inflation and comes at a time where petrol has increased to a record-high in the last five years. This is the backdrop against which this decision to help stabilise the fuel price was made.

“While stabilisation is important, affordability is too. Petrol is set to increase by 74 cents this month, diesel by 92 cents, and paraffin by 74 cents. This will further increase as the carbon tax and the Road Accident Fund levies increase over the coming months too. Herein lies the actual conversation we need to be having, one about affordability,” stated the Automobile Association’s Layton Beard.

6. Data costs are set to fall

After a public outcry and ongoing an inquiry into rising data costs in South Africa, Mboweni said that the Independent Communications Authority of South Africa (Icasa) would shortly be served with a policy that dictates data price spectrums and guidelines.

This will prevent data service providers from increasing costs outside certain set price caps. This policy is also set to be informed by the average South African’s affordability and consumption of data.

Other noteworthy budget speech announcements around social grants, education funding, and personal income tax can be found here.