Finance Minister Tito Mboweni has unexpectedly scrapped plans to raise R40bn in taxes over the next three years in his 2021 budget speech, making an unprecedented bid to boost South Africa’s economic recovery by easing the financial pressure on embattled businesses and households.
A surprisingly strong pickup inactivity, when lockdown restrictions were eased last year, had alleviated the magnitude of the anticipated blow to tax revenues after the Covid-19 pandemic struck, making the step possible, he told parliament on 24 February.
Last year’s recession remains the worst since World War II, but the bounce in output in the final quarter also means that the economy is likely to have contracted by 7.2% in 2020, less than earlier forecasts of 7.8%.
The shortfall in tax revenues for the financial year which ends in March will amount to just R213bn compared with a previous estimate of R312bn, due to a surge in corporate income tax, which was boosted by the impact of higher commodity prices on mining companies.
“Given the better-than-expected revenue performance, there is no longer a need to implement these measures and their withdrawal will not widen the budget deficit,” the Treasury said in its 2021 budget review.
The windfall also helped reduce the expected budget deficit for the financial year 2020/2021 to 14%, compared with an earlier prediction of 15.7%, and lowered SA’s unsustainable debt trajectory, which absorbs a fifth of its tax revenues with interest costs. The rand responded positively to this figure and rallied 1% against the dollar immediately after the first budget-related headlines were released by wire news services.
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