2022 Budget Tips – Make Your Voice Count
The Minister of Finance, Mr Enoch Godongwana, will deliver his inaugural National Budget Speech on 23 February 2022. As usual, the budget allocation always aims to strike a balance between competing national spending priorities. It is in this context that Minister Godongwana invites South Africans to share their suggestions on the Budget – what should the government be spending the money on, how to address a large budget deficit, new sources of tax revenues, and other Budget-relevant information.
Minister Godongwana looks forward to your contributions.
NB: Contributions can be sent through –
- National Treasury website here: https://bit.ly/3ruszsi
- Twitter: @TreasuryRSA
- Facebook: National Treasury RSA with the hashtag #TipsForMinFin and #Budget2022
Conference of the Parties (COP26)
The United Kingdom (UK) hosted the 26th United Nations Climate Change Conference of the Parties (COP26) in Glasgow from 31 October – 12 November 2021. South Africa is a party to COP26. The main aim of the conference was to try to finalise the rules needed to implement the Paris Agreement of 2015, to reach an agreement on common time-frames for the frequency of revision and monitoring of each party’s climate commitments. So, while the Paris Agreement sets the goals and pledges, in order to limit global warming to well below two degrees, (ideally 1.5), Glasgow, is seen as the last chance to implement and make the achievements of these targets a reality.
The main aims of COP26 can be summarised as follows:
1. To secure global net-zero by mid-century and keep 1.5 degrees within reach –
- a. To accelerate the phase-out of coal, curb deforestation and switch to greener economies
- b. To pledge to cut emissions of methane – the most potent greenhouse gas – by at least 30% this decade
2. Adapt more to protect communities and natural habitats –
- a. To protect and restore ecosystems, build defences, warning systems and resilient infrastructure
- b. More than 100 nations agreed to end deforestation by 2030
3. Mobilise finance –
- a. At COP15, rich nations promised to channel $100 billion per year to less-wealthy nations by 2020 to help them adapt to climate change and mitigate the further rise in temperatures
- b. At COP26, South Africa was offered a R131 billion pledge to manage its transition from coal to renewable energy sources, and a low carbon economy. The USA, UK, France and Germany offered to provide the capital over the next three to five years through grants and concessional finance. Although not finalised yet, Minister of Public Enterprises, Pravin Gordhan has stated that the funding will not go towards addressing Eskom’s debt but part of it will be used to Eskom’s just energy transition. Other projects requiring funding in South Africa is the green hydrogen project and the production of electric vehicles in South Africa
4. Work together to deliver –
- a. Establishing collaborations between governments, businesses and civil society and finalising the “Paris Rulebook” to make the Paris Agreement fully operational. The world is teetering on a knife-edge, let’s hope that the powers that be lead us responsibly into a greener world
Repo Rate Increase
On the 27 th of January, the reserve bank announced a further 25 basis points increase in the REPO rate making it an effective 4% per annum. The implied policy rate path indicates gradual normalisation in the first quarter of 2022, and into 2023 and 2024, given the inflation forecast. As usual, the repo rate projection remains a broad policy guide, changing from meeting to meeting in response to new data and risks.
Given the expected trajectory for headline inflation and upside risks, the Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates. However, economic, and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.
Better anchored expectations of future inflation should keep interest rates lower for longer and can be realised by achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage growth in line with productivity gains. Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy.
The “official rate” as gazetted by SARS is linked to the repurchase rate plus one per cent. The official rate is adjusted at the beginning of the month following the month during which the Reserve Bank changes the repurchase rate. Accordingly, the “official” rate of interest increases to 5% with effect from the 1 st of February 2022.
The term “official rate of interest” is defined in section 1(1) of the Income Tax Act 58 of 1962 (the Act)
A taxable benefit (fringe benefit) arises if an employee incurs a debt in favour of the employer, any other person by arrangement with the employer, or an associated institution in relation to the employer, if no interest is payable or if the interest payable is less than the “official rate of interest”. The difference between the amount which would have been payable if the debt had incurred interest at the official rate, and the interest actually paid by the employee, is taxed as a fringe benefit.
South Africa’s Covid-19 Response Gets a $750 Million Boost
The World Bank Group Board of Executive Directors has approved South Africa’s request for a $750 million development policy loan (DPL). This loan will support the Government of South Africa’s efforts to accelerate its COVID-19 response aimed at protecting the poor and vulnerable from the adverse socio-economic impacts of the pandemic and supporting a resilient and sustainable economic recovery.
The funding is a low-interest loan that contributes to the government’s fiscal relief package while reinforcing South Africa’s decisions on how best to provide relief to the economy and those worst affected by the current crisis. The loan complements support by the International Monetary Fund, the African Development Bank, and the New Development Bank as part of the Government of South Africa’s broader financing strategy to access external financing from international financial institutions.
As the second-largest economy in Africa, South Africa’s economic performance has spill-over effects on other countries in the region. Its recovery and successful economic development will provide an
economic boost to the whole region.
While this loan will plug some holes it will be interesting to see the impact when the Finance Minister tables his budget on the 23rd of February.
Sincerely,
