Our 2021 Business Finance Forecast Based on the 2020 Mid-Term Budget Speech
The global pandemic this year changed everything we thought we knew about how 2020 would shape-up. The year, instead, turned into one of rapid-fire adaptation and response—especially for our finance minister, Tito Mboweni. When he delivered the Medium Term Budget Policy Statement (MTBPS; aka the mini-budget), he knew that the private sector and tax-laden citizens needed a financial forecast of hope. We were looking for definitive solutions to our most pressing problems.
Lets dive into our business finance forecast with how we think he faired, and how this will most likely affect us next year.
Finance Forecast: How the Medium Term Budget Policy Statement will impact business in 2021
To be candid, the MTBPS was vague. Yes, Mr. Mboweni was clear that the R10.5 billion for SAA is not a bail-out but part of its business rescue plan. We also know that this amount was made possible by digging into allocations intended for the police, Home Affairs, International Relations and Government Communications and Information Systems (GCIS).
However, details on how an additional R40 billion in tax revenue will be raised over the next four years were lacking. Of course, policies are only discussed in the annual budget. Still, something to alleviate the worried minds of already tax-laden businesses and individuals would go a long way.
Many providers in the finance, accounting and tax fields were left scratching their heads following the presentation. Here is what we know for sure.
Fighting a Fiscal Cliff: South Africa’s Debt and Borrowing
In February before the pandemic, the estimated gross debt was R3.2-trillion, 63.3% of GDP. By June it remained relatively stable at R3.9-trillion, 81.8% of GDP. Now, however, projections on loan debt are nearing R5 trillion, 90.1% of GDP, by the end of 2022/23.
With daily borrowing of R2.1-billion, we are looking at R271.8-billion on debt service costs. To give some perspective, this is more than the projected spend on health in 2021, which is R235.3-billion. This is considered dangerous territory. It indicates that we could realistically hit a fiscal crisis if we don’t rein-in spending and find viable, sustainable ways to increase revenue generation.
Take out: Businesses can expect higher costs due to inflations and highly competitive marketing. Securing funding for growth will also likely become more difficult. Cash flow will, as ever, be critical to survival over the coming year. Professional managerial accounting services can help with implementing appropriate cash flow strategies.
Finance Forecast: Tax Collection 2021
The minister said that R5 billion of tax increases are needed in 2021. No tax policy statements were made, as this is usually reserved for the February Budget. Still, there was an emphasis on improved tax collection and administration.
Lexology.com seems to think that what we have heard so far shows signs of reliance on penalties—especially understatements—to generate additional income.
We hope that effort will be poured into improved tax collection methods as opposed to further burdening the tax compliant.
Finance Forecast Take-out: Businesses should brace themselves for relentless tax collection methods. The revenue service will likely impose severe penalties as well. Meticulous record-keeping and tax calculations are crucial. We further expect amendments to tax laws to enforce collection and penalty policies. Businesses would do well to ensure that they have tax experts on hand.
Tightening The Belt On Government Spending
The finance minister said what we wanted to hear regarding the public sector wage bill and increases. It, however, seeing this to fruition has proven challenging.
As such, the rating agencies’ decision to downgrade South Africa due to a lack of confidence in our ability to reduce spending was justified. This, sadly, does not bode well for business. It means that living costs will inevitably rise, placing pressure on household disposable income. Where individuals feel the pinch, businesses follow after.
Finance Forecast Take-out: Companies should adjust their forecasts accordingly. It is important to keep a realistic view of what targets are achievable and make necessary internal changes to overcome the shortfalls. We recommend reviewing pricing strategies for increased competitiveness in light of consumers’ price sensitivity. Where product offerings or packages can be manipulated to cater to prudent budgets, businesses will thrive.
Looking for expert guidance on how to poise your business for growth in 2020? Let’s set up a call