It is that time of the year again, when we hold our breaths to see what the 2021 Budget speech will deliver against a backdrop of the devastating loss, sacrifice and hardship for so many South Africans brought on by the COVID-19 pandemic.
Finance minister, Tito Mboweni, will deliver the National Budget speech on 24 February 2021 at 2pm. With our economy in such a vulnerable position, what will the key announcements of the 2021 Budget Speech be? What will the message be for South African citizens, financial advisers, the SME market and investors? Any predictions? Today, Moonstone shares some of the insights of a few industry specialists.
Financial adviser as beacon of hope
“2020 did not work out as planned, many people’s financial situations changed, businesses suffered, jobs were lost, lives were lost – for many people nothing will ever be the same,” reminds Sharon Teubes Hamman, Senior Legal Adviser at Momentum. According to Hamman financial advisers have proven to be a beacon of hope as many clients saw the positive effects of their financial plans, i.e. income protection benefits paid out, death benefits paid out, savings that could help maintain a standard of living, etc. “Our focus should remain on planning for an ever-changing environment and providing clients with the certainty that their financial plans are on track, even if it looks totally different than a year ago.”
The National Budget means different things to different people. Hamman explains that for the man on the street, it is often associated with dread. While inflationary adjustments to rebates result in a slight increase in take-home pay, it could bring higher excise duties, revised income tax rates and, recently, a VAT hike. For the private sector, it is an indication of the state of the financial landscape in which they have to do business and for the world, a strong indication of whether SA, as an investment destination, is a buy, hold or sell. For financial advisers it is all of that, and more. “Tax changes, comments and decisions impacting investor confidence, as well as the impact of the National Budget on the psyche of clients, all have a direct impact on the financial plan,” Hamman stresses.
SME sector looking for signs of improved business confidence
“The COVID-19 pandemic has increased the pace of deterioration of South Africa’s government finances because revenue collection has fallen, the cost of borrowing has increased, and it has pushed our economy into its longest recession in over two decades. This has severely affected the SME market which is such a big driver of growth (as well as employer) in the country,” Garth Rossiter, Chief Risk Officer at SME business enabler firm Lulalend mentions.
As a result, SMEs in South Africa are looking for signs of improved business confidence which will drive growth and lead a turnaround in the economy by increasing demand for products and services as people spend more. For this year’s Budget, Rossiter believes the Finance Minister is stuck between a rock and a hard place.
“Government, like any of the businesses we fund, needs its income to exceed its expenses to avoid running a deficit. To budget effectively, it either needs to increase income or reduce expenditure, but both of these are going to prove difficult in this year’s budget.”
Taxes will be one of the key focal points
Taxes will be one of the key focal points when Finance Minister Tito Mboweni delivers the 2021/22 Budget, with government looking to find ways to fund a universal Covid-19 vaccine programme amid muted economic growth.
“Most insurers within the insurance industry will be calling on government not to increase personal income taxes this year,” Neil Wolno, Acting CEO at FMI, a Division on Bidvest Life Ltd comments. Wolno stresses that a tax increase on an already-stretched consumer’s wallet will have an immediate impact on their finances and many consumers are already re-evaluating their financial priorities. He warns that a tax increase could see policyholders cancelling their insurance policies simply to meet day-to-day expenses, putting themselves at increased risk. “Given the disproportionate number of South Africans underinsured without access to life insurance policies such as income protection or life cover, this may ultimately result in greater dependency on government aid,” Wolno emphasizes.
But Carla Rossouw, tax lead at Allan Gray expects the 2021 Budget to centre around tax increases and improving the tax collection capabilities of SARS.
“In 2020 there was a glimmer of hope as we saw no major tax increases to personal income tax (PIT) and no changes to the corporate or value-added tax (VAT) rate. Instead, the focus shifted to reducing government spending, which included reducing the public wage bill by roughly R160 billion over three years. It appeared as if government conceded that taxing an already concentrated and shrinking tax base would not deliver superior revenue income. The success of the 2020 Budget was therefore solely reliant on the assumption that the wage bill could be reduced. But little did we know that a pandemic was approaching, with devasting consequences for an already-fragile economy.”
Read more about her prediction: #Budget2021 – Focus on tax increases and improving tax collection capabilities