- The 2021 National Budget Speech is set to be delivered by Finance Minister Tito Mboweni on Wednesday, 24 February
- To get insight on what to expect from the National Budget Speech, Briefly.co.za spoke to an expert
- Dr Krige Siebrits is the Senior Lecturer in the Department of Economics at the University of Stellenbosch
Senior Lecturer in the Department of Economics at Stellenbosch University, Dr Krige Siebrits believes there are two areas that will have the largest focus on during the 2021 National Budget Speech:
"The increasingly worrying fiscal position (as reflected in the rapidly growing public debt-to-GDP ratio), and the role of fiscal policy in an economy that has performed poorly for more than a decade and remains in the choking grip of the Covid-19 pandemic."
Dr Siebrits spoke to Briefly.co.za about what to expect during Finance Minister Tito Mboweni's Budget Speech. Mboweni is expected to address the nation on Wednesday, 24 February at 2pm.
Speaking about how the Covid-19 pandemic has financially affected South Africa, Dr Siebrits said:
"Each day under lockdown is very costly in economic terms, and the delayed start of the vaccination programme has compounded that. By comparison, the financial cost of the vaccination programme is tiny.
"The Department of Health has estimated that the cost of vaccinating 67% of South Africa - the portion required to achieve “herd immunity” and bring the virus under control - would be about R21 billion, while some scientists and economists have suggested a lower total cost of R10-R18 billion.
"To put that into perspective, the national government budgeted to spend slightly more than R1 800 billion in the 2020/21 financial year. Furthermore, private medical aid schemes are likely to bear a significant portion of the cost of the vaccination programme."
When asked about what other avenues could be looked into to make up for the money spent on the vaccination programme, Dr Siebrits said that in principle, the government could either increase tax rates or reduce government spending on other items:
"Neither of these options would be ideal right now. Fortunately, recent forecasts have suggested that the government’s tax revenues in the 2020/21 financial year may be as much as R100 billion more than the budgeted amount. If it materialises, such an overrun would make it much easier to finance the vaccination programme."
With the country's debt on the rise, Briefly.co.za asked Dr Siebrits how the government could get out of this:
"That is the proverbial “million-dollar question”! Unless economic growth accelerates sharply, which is unlikely in the foreseeable future, it would be impossible to arrest the rise in the public debt burden without implementing fiscal consolidation measures. These entail raising more government revenue by increasing tax rates or introducing new taxes, reducing government spending, or a combination of the two.
"Fiscal consolidation measures (which are sometimes called “austerity measures”) are controversial in South Africa and elsewhere, in part because some economists believe that they further depress economic growth rates.
"But the economic and social costs of a public debt crisis would also be very high, and at some stage, the risk of that would make fiscal consolidation unavoidable. All of this explains why National Treasury and many economists have called for structural economic reforms to boost the GDP growth rate."
Reforming state-owned enterprises (SOEs) seems to be proving a challenge for the government. When asked if the government would shift pressure on public finances, Dr Siebrits said:
"The sorry state of many state-owned enterprises (SOEs) has complicated efforts to turn the fiscal situation around: bailouts and government guarantees worsen the pressure on the public finances. And the economic costs of load-shedding, a dysfunctional rail transport system and so forth are huge. Of course, ending this situation will remain an elusive goal unless the governance and performance of SOEs are sorted out.
"This is undoubtedly a major challenge, and National Treasury cannot deal with it on its own. But much faster progress is needed."
Dr Siebrits believes that the budget is likely to include fuel levy and sin taxes as sources of revenue that could be looked into:
"Increases in the major direct taxes on individuals and companies are unlikely because of the state of the economy. The introduction of a wealth tax has been mooted in South Africa for some time.
"There are economic arguments for and against such a tax, but international evidence suggests that it would not yield enough revenue to dramatically improve the fiscal situation. Perhaps the most promising option is to target tax evasion and avoidance by strengthening the revenue collection capacity of the South African Revenue Service (SARS), measures to clamp down on illicit financial flows, et cetera."
In other news related to the 2021 Budget Speech, Briefly.co.za recently reported that the Automobile Association (AA) asked Mboweni to not increase fuel levies. The Association says it is aware of the relief needed to ease the country's burden.
The AA believes that any adjustment to fuel levies will add another layer of financial strain on consumers who are already facing heavy financial demands due to the global pandemic. The Association added that any tax increases must be viewed against current government expenditure.
The AA noted that there are many South Africans who have either lost their jobs or had their pay reduced due to the coronavirus pandemic.
Enjoyed reading our story? Download BRIEFLY's news app on Google Play now and stay up-to-date with major South African news!
Source: Briefly News