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#Budget2020: Budget Highlights


The 2020 South African Budget delivered by Treasury yesterday is focussed on doing the right things:

  • Directly addressing the elevated civil service wage bill by cutting it, rather than increasing taxes.
  • Rebalancing expenditure towards capital from consumption; and
  • Being mindful of negatively impacting economic growth amid its fiscal consolidation efforts.


Budget Framework

The main budget deficit is now estimated at 6.5% of GDP in FY19/20 and 6.8% in FY20/21. Low growth has led to a R63.3 billion downward revision to tax revenue estimates in 2019/20 relative to the 2019 Budget. Debt-service costs now absorb 15.2% of the main budget revenue.

Over the next three years the 2020 Budget proposes total reductions of R261 billion, which includes a R160.2 billion reduction to the wage bill of national & provincial departments, and national public entities. These measures narrow the consolidated deficit from 6.8 % of GDP in 2020/21 to 5.7% in 2022/23, with debt rising to 71.6% of GDP over the same period.


Tax Revenue

Government opted not to announce any large tax increases and instead focussed on spending cuts, particularly wage bill savings. Tax revenue estimates for the current year have been revised down by R10.7 billion compared with 2019 MTBPS estimates. In addition, government has chosen not to apply additional revenue measures of R10 billion for next year that were projected in last year’s budget.

Tax policy proposals for 2020/21 include:

  • Personal income tax relief through an above inflation increase in the brackets and rebates.
  • Limitations to corporate interest deductions to combat base erosion and profit shifting.
  • Restricting the ability of companies to fully offset assessed losses from previous years against taxable income.
  • Increases to the fuel levy by 25c/litre.
  • Increasing the annual contribution limit to tax free savings accounts by R3 000 to R36 000 from 1 March 2020; and
  • Increasing excise duties on alcohol and tobacco by between 4.4% and 7.5%.


Spending Programmes

The 2020 Budget proposes total consolidated spending of R1.95 trillion in 2020/21 with the largest allocations going to learning and culture (R396.4 billion), health (R229.7 billion) and social development (R309.5 billion). Debt-service costs remain the fastest-growing expenditure item, followed by capital expenditure.


Treasury has outlined the following key risks to the fiscal outlook

  • Persistently weak economic growth.
  • Insufficient progress on Eskom reforms, and demands from other financially distressed state-owned companies; and
  • Outcomes of the renegotiation of the existing wage agreement and the following round of wage talks.

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In Summary

Whilst National Treasury has delivered a credible 2020 budget, fiscal consolidation remains reliant on the upcoming public sector wage negotiations. Furthermore, fiscal debt is not projected to stabilise over the medium term even if Treasury’s budget targets are achieved.

The success of this budget depends on whether the public sector wage bill can be decreased by R160.2 billion and if a Moody’s ratings downgrade in March 2020 can be averted.

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The information contained herein as well as the individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of Carrick or any financial product. This communication is intended to be used for information purposes only by its designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information freely available to the public and from sources believed to be credible and reliable, Carrick Wealth makes no representation that it is accurate or complete or that any returns indicated will be achieved. Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. The Carrick corporate group is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.

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