Finance minister Tito Mboweni's budget speech came as a relief to long-suffering taxpayers as an expected VAT increase did not materialise and the government announced plan to lower corporate income tax to below 28%.
Not only did the government not increase taxes for SA’s struggling consumers and companies, individuals were handed unexpected relief through above-inflation adjustments to tax brackets.
Leaving the brackets untouched as it did in 2019, would have handed the state an extra R12bn in revenue; instead the economy got an unexpected R14bn boost.
But Mboweni's decision to find savings by slashing the public wage bill by R160bn in the next three years sets the government on a collision with the trade unions, which within minutes of the speech called the move a "declaration of war".
The bold budget, described by Mboweni as a "plan to win", received the thumbs up from the business sector.
Black Business Forum CEO Thando Mpulu said the decision not to increase VAT would be welcomed by consumers.
"We believe that if he had increased VAT, that would suffocate consumers' disposable income, leaving them with little to spend on our businesses. The move not to increase VAT means that people will have more money in their pockets to spend as they wish."
Border-Kei Chamber of Business head Les Holbrook described Mboweni's move not to increase VAT as "bittersweet".
"Yes we welcome such a move as it will offer much-needed relief to our consumers, who will now have more to spend. It is a positive thing. However, such a move is bittersweet as far as we are concerned because we also need such tax revenue in order to deal with the challenges facing this country.
"If we are not increasing VAT, one is left with questions such as 'do we have enough revenue to deal with the country's priority issues?'"
Both men agreed that the decision to lower corporate income tax was a good one.
"On corporate income tax we again support the move as that will attract more investors to our shores. Our economy is not doing well, and we want investment in the country. If such relief is granted to the corporate world, that will make more corporates want to come and do business in our country, thus increasing investment," Mpulu said.
Clouds are already starting to build over Mboweni's decision to cut the public wage bill, however.
While his “austerity budget” may please investors and analysts, federations have vowed not to take Mboweni's plans lying down.
Cosatu general secretary Bheki Ntshalintshali said Mboweni's plan would severely affect service delivery.
"The public sector wage bill is not bloated and they [government] know that because there are more than 130,000 critical vacancies that have not been filled. We reject this approach and take it as a declaration of war," Ntshalintshali said.
"The unions are waiting to see what are they proposing when we go to the bargaining council because not filling those critical vacancies would also be cutting the salary bill. How do they expect the people who need it get service delivery when they come with such approaches? Workers are already overworked as it is."
SA Federation of Trade Unions general secretary Zwelinzima Vavi described Mboweni's speech as a “brutal assault” on civil servants.
“The levels of investment in this economy are very low in both the public sector and the public sector. To cut R160bn, in addition to the R150bn that was cut in the previous budget, is killing any prospect of a growth," he said.
“The government needs to clean its own house. Treasury officials claim we are losing 30% to 40% of government procurement budget to tender fraud. That is billions of rand. If we were to stop that, we would not have to cut the salaries of police, teachers and nurses,” he said.
Ian Stuart, the acting head of the budget office, acknowledged negotiations would be tough and subject to political processes. Mboweni later said he was confident labour and government would find each other.
The education sector, so long prioritised by government, was not spared cuts in Mboweni's budget.
Treasury has slashed R2.3bn from the infrastructure allocation to TVET colleges, and R621m from university infrastructure.
It has also cut R1.85bn from the education infrastructure grant and reduced the school infrastructure backlogs grant by R122.8m, which is likely to delay progress in ensuring all schoolchildren learn in safe classrooms with appropriate sanitation facilities.
Given that teachers form part of the public sector, there are bound to be repercussions from government's decision to cut the wage bill in that respect as well.
However, the basic education budget is set to rise from R262.5bn in 2019/2020 to R293.2bn in 2022/2023.
Higher education sees its budget allocation rise 4.6% over the next three years, increasing from R112.1bn in 2019/2020 to R128.4bn in 2022/2023.
During the press conference before the budget presentation, David Masondo, the deputy finance minister, had a message for the unions: that the wage bill is one of the biggest factors driving the cost of providing services, and downsizing it was about more than just cutting costs to the government; it would help businesses across the economy and their ability to employ more people.
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