SA economy: What South Africans could face in 2020, higher taxes

SA economy: What South Africans could face in 2020, higher taxes

- South Africans can expect news of higher taxes or new taxes later this year

- There's a possibility that the interest rates could go down, but it won’t be soon and rates for government borrowing could be negatively affected

- took a look at what you as a consumer should expect from the economy this year

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South African consumers will soon find out what 2020 has in store for them on 16 January, when the monetary policy committee of the Reserve Bank announces its decision on the new interest rate.

According to Business Insider SA, the same factors that prevented the central bank from reducing the interest rate last November are still present.

The factors include:

  • The threat of a downgrade by Moody’s Investor Service, which would classify SA as junk status, would lead to the withdrawal of billions in investments in government bonds, thereby weakening the Rand. Economists’ estimate on the scale of the nett outflow range from $1.5 billion to $12 billion (that’s around R21 billion to R168 billion at an exchange rate of R14 to the dollar).
  • The low inflation rate is not expected to stay that way. The Reserve Bank is concerned over the sharp increase in food prices, electricity tariffs, fuel prices and wage increases. Last November, inflation ran to 3.6%.

However, the Central Bank’s quarterly projection model predicted the interest rate will only decline by the third quarter of this year, 2020.

If the interest rate is left unchanged, it will still be interesting to see if an argument persists within the monetary policy committee. Last November, two of the five members were in favour of a cut.

Investors who reply on interest income should not get their hopes up about higher interest rates either.

The budget could bring new taxes

Lucie Villa, Moody’s lead analyst for SA, said the Budget Speech by Tito Mboweni, Minister of Finance on 26 February could be a watershed moment.

“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level,” said Villa.

Mboweni’s plan for Eskom will be closely watched as the power utility has R450 billion in debt, of which government guarantees nearly R300 billion. So if Eskom cant make its debt payments, the government will have to.

Mboweni warned in his medium-term budget framework in October that new taxes would be announced, even though this may not come into effect in February.

“Significant tax increases over the past several years leave only moderate scope to booast tax revenue at this time. Given the size of the required adjustment, however, additional tax measures are under consideration,” said Mboweni in October.

Last year consumers and companies accepted an increase on the highest rate of income tax, tax on trusts, in value added tax, a sugar tax on sweetened drinks and a carbon tax.

However, a downgrade could mean the government pays more for its debt, which in turn affects the nation’s financial position and heightens the urgency of tax increases.

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