Reading financial publications and other newspapers in the week leading up to Minister of Finance Tito Mboweni’s Budget Speech earlier this week was a painful experience – doom and gloom par excellence. Not one economist did not forecast tax increases to pay for the COVID-19 vaccinations. One famous economist reiterated his lifelong theory that South Africa is very close to the cliff and will definitely fall off it soon. I was also a bit apprehensive about the contents of the new Budget.
The minister surprised friend and foe by sticking to his guns – by not surprising us with a new tax on the wealthy or a special tax for the vaccination process. To me, and many economists, the surprise of the Budget was that Mboweni continued to do what he has been promising since day one in office. Not even 2020’s lengthy lockdown periods and the enormous extra expenses of COVID-related allowances, nor the need to vaccinate 60 million people as soon as possible, could derail him from the promises made in 2019, when he delivered his first “own” Budget Speech. (He was appointed as Minister of Finance in October 2018 and had to read a speech that had been prepared for him).
I read somewhere that Harry Houdini was the world’s best prestidigitator of all time, and had to google the meaning of the word. Its origin has two sources: presto (Italian), which means “fast”, and digitus (Latin), which means “finger”. A magician has fast fingers and does tricks with cards and other objects too fast for the spectators’ eyes to follow. So the typical magician is also a prestidigitator.
Mboweni came out of this Budget round unscathed, like Houdini, even though he seemed stuck. Yet there is no sign of an effort to trick us, the audience. The Budget Speech is the result of a slow, deliberate process of getting government finances back to being sound and healthy. Visit the National Treasury’s website and read the 2019 Budget Review alongside Mboweni’s tweets over the past two years. He believes that the government is too large and that its salary bill is out of order, and he is prepared to make himself unpopular with the unions to get the share of government expenditures smaller, even if officials have to live without annual increases for a few years. Vacant posts will not necessarily be filled, and officials will be encouraged to retire earlier.
Mboweni has also lost patience with Eskom and Prasa, which will not be allowed to beg on bended knee at National Treasury any longer. He also understands that the government cannot create jobs – it seems able to create posts for people to sit in, receiving salaries, but not productive jobs for skilled individuals to add value to the gross national product.
This explains the decision to decrease corporate tax rates, and even decrease individual tax rates for most. Companies are able to create jobs, because if they pay fewer taxes, their costs decrease and they become more competitive. They can then lower their prices, which will increase demand for their goods. That is when they are required to produce more and ultimately necessitated to employ more workers.
Mboweni is fortunate to have had more funds collected by SARS than expected during 2020, so that he did not have to implement new taxes or punish companies and individuals with higher rates. It’s worth noting that since he became Minister of Finance, SARS has also been cleaned up and refocused, and the more-than-expected revenue collected could partly be attributed to the minister, to whom SARS reports.
The saddest part of the Budget is the increases in taxes on alcohol and the levies on fuel. The liquor industry is struggling to get back on its feet, and is now being kicked while it’s down. Increasing the fuel levy again is also really bad for the economy. Our research shows that the poorest people in the country ultimately suffer the most with higher fuel prices. They have to spend a huge part of their budgets on transport to and from work, and the largest portion of their budgets goes towards food, which becomes more expensive when transport margins increase.
I’d like to conclude with the closing paragraph from an opinion piece I wrote last year: “Finance Minister Tito Mboweni is our economic surgeon, and he needs to be given the full authority to do what is required. We are lucky to have the right Minister of Finance, but he has to be given the green light to implement all the policies he advocates and in which he believes, to restore our country to some sense of normality, productivity and growth.”
Professor Jan H van Heerden is a professor of economics in the Faculty of Economic and Management Sciences at the University of Pretoria.
An edited version on this article first appeared in Daily Maverick on 25 February 2021.