Budget Speech 2020

In his Budget Speech, the Minister of Finance, Tito Mboweni announced that, taking the weak economic outlook into account, additional revenue would not be raised from tax proposals in 2020/2021. Instead, reliance would be placed on an expected increase in tax revenue which stems from fiscal consolidation, the revitalisation of the South African Revenue Service and the broadening of the South African tax base.

HOW WILL THE KEY RATE CHANGES AFFECT YOUR POCKET?

THE GOOD

• Personal income tax relief will be achieved through above-inflation adjustments to all personal income tax brackets.

• The annual contribution limit for tax-free savings investments will be increased from R33 000 to R36 000 per tax year from 1 March 2020.

• The cap on the exemption of foreign remuneration earned by South African tax residents is increasing from R1 million to R1.25 million per tax year from 1 March 2020.

• No transfer duty is payable on the purchase of property up to the value of R1 million. This has been increased from R900 000 from the 2019/2020 tax year.

• Monthly tax credits for medical scheme contributions were increased by 2.8% to the following:

• R319 per month per beneficiary for the first two beneficiaries

• R215 per month for each additional beneficiary

THE BAD

• Fuel levy increases by 16 cents per litre on 1 April 2020.

• Carbon tax rate increases by 5.6% for the 2020 calendar year.

• Plastic bag levy will increase to 25 cents per bag.

• Excise duties on alcohol and tobacco will increase by between 4.4% and 7.5%.

THE UNCHANGED

• Income tax rates for companies and trusts

• VAT

• Estate Duty

• Donations tax

• Capital gains tax inclusion rates for individuals, companies and trusts

• Securities transfer tax

• Transfer duty (marginal relaxation of brackets to accommodate inflation adjustments)

• Sugar tax

EFFECTS ON THE MARKET

Following the Budget Speech, the JSE had its first day of gains in five days while the rand also firmed, brushing off coronavirus worries. This was preceded by an infamous Monday 24 February, which saw a 4.5% decline in the JSE Top 40 Index. This was the worst daily performance in the last decade, the 15th worst day this century, and the 23rd worst day in the last 25 years as noted by Simon Fillmore (CEO: ISEC).

The rand, government bonds and shares on the JSE all firmed on Wednesday afternoon after Mboweni promised to reduce the public-sector wage bill.

CURRENCY

The local currency was weaker against most currencies shortly before Mboweni began speaking, but by 3.21pm had reversed course to be:

$ - 0.79% firmer at R15.0934/$

€ - 0.80% at R16.4159/€

£ - 1.21% stronger at R19.5215/£

BOND

The generic 10-year government bond also firmed, with the yield falling 13 basis points to 8.70%, its best level in about seven months

STOCK

• The JSE closed 0.43% higher

• The banking index leaping 6.21%, its best day in more than two years

• The general retailers on the JSE Index leapt 4.23%, its biggest one-day rise in more than four months

In what is described as “a major step towards fiscal sustainability”, the government proposed significantly cutting expenditure over the next three years. Compared with its 2019 projections, this could very well be enough to delay a downgrade to below investment grade of South Africa’s credit rating by Moody’s Rating Agency.