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South African Budget Speech 2020/21

Bite-Sized Budget 2020/21 Take-Outs for Busy Businesses

The budget speech has come and gone, but what it means for business is still baffling the best of us.

While Finance Minister, Tito Mboweni, delivered some good news and some bad news, his speech mainly comprised proposals. At least, as far as the private sector was concerned. This, leaving business executives and owners, wondering, “OK, so what does this mean?”

We have read between the lines for you. Here is what you need to know, in plain English, in under two minutes.

Securing Stability

The biggest take-out from the budget speech was Mboweni’s determination to reduce the public-sector wage build—a move we wholeheartedly support.

The private sector and individuals have been taxed to capacity and could do with a break (something that Mboweni also addressed). However, that’s not the real point behind this move.

Astutely, this action illustrates great prudence on the government’s behalf, which goes a long way to restore confidence and, thus, stability. We hope then that this would contribute to favourable ratings from agencies such as Moody’s. The Rand’s positive reaction to the budget speech is a good indicator.

Backing Small Business

There’s no denying it, SMEs are crucial to economic growth. They increase our GDP, help to keep money within our borders and creates jobs.

For these reasons, we are also pleased to see the pledges of cash injections into entrepreneurial development and small business incubators.

The government has allocated R3.2bn to the small business and innovation fund and R481.6m to the Small Enterprise Development Agency’s incubation programme. The latter will provide a sizable boost to new business creation. It may take a while still to bear fruit, but we will see fewer SMEs failing due to lack of support.

A further R19.8bn will be used as industrial business incentives. Industrial activities require human labour, representing a favourable opportunity to reduce our 29% unemployment rate.

Corporate Tax Relief

In fairness, Mboweni had to tread potentially hostile territory while preparing this year’s budget. He had to pick his battles. Between the public-sector wage bill and better rebates on personal income tax, he did well to quell our (South African’s) growing cynicism.

So, though we have no concrete figures-no less any guarantee-the hint at corporate tax comes as a relief. Likely, such cuts would only be seen in the medium-term. Should they come to fruition, businesses will receive a leg up that enables them to grow alongside the recovering economy.

Rising Costs to Move Goods

Any business concerns involved in freight and logistics would recognise the impact of the increased fuel levies immediately. However, all businesses should take note.

The 16c/litre increase in the general fuel levy and 9c/litre increase in the RAF levy will see the general fuel levy go up by 25c/litre. This is an indirect tax that will impact business and individuals alike.

Still Holding Our Breath on Powder Production

“The government has announced urgent reforms in the electricity sector to ensure adequate supply of power for businesses and households” —National Treasury Budget Review 2020.

R133bn has been set aside for Eskom. That sounds good, but we did not hear anything tangible about how these funds would be used to address the problems within the SEO. We would need more information from policymakers on this specific topic to conclude what this means for business.

What we want to keep eyes on, though, is the government’s response to township citizens’ outright refusal to pay for electricity. It is one thing to put money towards restructuring the electricity sector—but what about receivables once it is reformed?

Data Cost Decline

The Minister is adamant that data costs must fall. Should this materialise, it would be hugely positive for SMEs.

Larger companies can afford to pay upward of R15 000 p/m for primary and secondary (back-up) Internet lines. Smaller businesses tolerate less stable lines for the sake of affordability, negatively impacting their competitiveness.

The proposed spend on national infrastructure is therefore welcomed. In the short-term, SMEs in the supply stream stand to benefit. In the long-term, better infrastructure, of course, bodes well for business and economic growth.

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