Tito’s 2021 Budget from an accountant’s perspective

Tito’s 2021 Budget from an accountant’s perspective

• 26 February 2021
• Accounting
• Ciaran Ryan

It was heartening to see Mark Silberman, founder of Accfin Software and vice-chair of the South African Institute of Chartered Accountants [Saica] tax technology subcommittee, talking truth to power over the impact of the 2021 Budget on taxpayers and accountants.

Here’s the sobering part of his interview with Moneyweb: there are 21 million registered tax-paying individuals with 552,000 filing PAYE returns, of a total 6.5 million individuals expected to file returns. Then there are 3.2 million registered companies.

“But these numbers were produced at the beginning of 2020, before the pandemic,” says Silberman. “We are talking about at least a million people who’ve lost their jobs, so the numbers are going to be reduced by that. As for companies – there are claims that 42% of all small businesses have gone insolvent or can’t continue. So it doesn’t really look good as far as keeping the tax base intact. It’s smaller; it’s going to get smaller. Government has to do something from an economic point of view, and keep the promises recently made.”

When Silberman canvassed tax practitioners, 80% of them said there’s a tax revolt underway. Ratepayers are expressing their disgust with local governance in different ways: some are withholding rates and taxes, others are taking municipalities to court to take over services such as sewage and water supply that have been allowed to rot. That is a trend which is just beginning, and it is going to ramp up as municipalities award themselves inflation-plus increases while the rest of the country suffers.

The attitude from SA Revenue Services (Sars) is to “get tough” with taxpayers. An example of this is a recent amendment to the Tax Administration Act where taxpayers can be criminally charged if they wilfully or negligently make an error – or a simple administrative oversight, such as fill in the address incorrectly or omit to disclose who is the public officer.

Whether Sars will actually jail someone for these “offences” remains to be seen, but it’s a dead certainty this amendment to the Tax Administration Act is headed for a court challenge.

All of this is coming down the necks of taxpayers at a time when they are being forced to bail out some stunningly stupid decisions by government, such as the bans on alcohol, cigarettes and beach visits.

There was another article by Bloomberg within the last week suggesting that neatly a quarter of all houses valued above R2.6 million are up for sale – with many of the sellers planning to emigrate. Why they are planning to emigrate is not explained but it is safe to assume that talk of even higher taxes, and perhaps a wealth tax (which was not introduced in this Budget) has forced many of them to throw in the towel and take their ample skills to Australia, the US or Europe. Those able to afford houses valued at more than R2.6 million would be those that are professionals, highly paid, and able to move pretty much anywhere in the world. This loss to the SA economy would be incalculable.

Finance Minister Tito Mboweni’s Budget lacked any real growth plan. It forecasts a feeble 3.3% growth this coming year, before sinking to 2.2% a year later. China will grow by more than 8% this year. Even Europe is expecting growth close to 4%. We can’t even match the developed world. Here is your low growth trap with no end in sight.

To grow the tax base, we need to first recover the million-plus jobs that have been lost due to Covid and then add millions more. The only way to do that is get small business growing again. Some R200 billion was made available to rescue small businesses during the pandemic, but only 18% of this was disbursed. The system is broken and government has no idea how to fix it.

The elephant in the room is the public sector which siphons off wealth from the productive sector and gives very little back in return. Dropping the corporate tax rate to 27% (from 28%) won’t cut it, but it’s a move in the right direction.

In the last fiscal year, public wages swallowed 47% of revenue, up from 41% the year before. The plan is to moderate public sector pay increases to just 1.2% a year in the medium term. That’s just not enough to bring order to the state finances.

Zero-based budgeting will be implemented at the Department of Public Enterprises and the National Treasury, and then rolled out to other departments.

There’s plenty room here for accountants to get involved in fixing this mess, starting with implementing zero-based budgeting right across the public sector. It remains to be seen what push-back comes from public sector workers and managers, and it will likely be ferocious. But accountants will be needed at every level of government. There are some shockingly managed municipalities that need financial expertise, and is doesn’t stop there – all the way to provincial and national level, people with financial skills and the ethical training that accountants are expected to carry in their DNA will be required to get the job done.

This Budget will not get us to the 5-6% growth we need to create millions of jobs. It’s a holding Budget, one that barely spares us suffering another credit downgrade. Tito has the toughest job of any cabinet member. He just does not have the support of his crew to pull this off.

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