South Africans could afford a slight sigh of relief as finance minister Tito Mboweni outlined a national budget for 2021/2022 that included tax cuts for both consumers and business in his 24 February Budget Speech.
Less than a year ago, the Medium-Term Budget Policy Statement (MTBPS) outlined the need to increase taxes by R40 billion over the next four years to make up for a shortfall in tax revenue in the fallout of the coronavirus pandemic.
Fortunately for South Africans, this requirement has – at least for the moment – been suspended, with corporate income tax lowered to 27% and personal income tax brackets increased by 5%. This will provide approximately R2.2 billion in tax relief to South Africans in this financial year.
So what’s behind the tax cuts?
Together with a better-than-anticipated recovery in consumption and wages, revenue was bolstered by a large boost in corporate income tax receipts from the mining sector. This provided a timely injection to the South African economy to the tune of R99.6 billion.
And it could have been better: Like most other industries, miners in South Africa were hard hit by domestic and global lockdown restrictions in 2020, contracting by an overall 12.6% in the first three quarters of the year.
In the second quarter, mining contributed just R155,632.07 million to GDP.
However, the sector posted a strong third-quarter recovery, with higher commodity prices – especially for gold and platinum group metals – aided by a weaker rand, significantly improving the sector’s overall profitability, recovering to a GDP contribution of R218,467.67 million.
Unpacking the recent commodity price boom
Across the board, commodity prices have surged to highs last seen almost a decade ago, sparking speculation that a new commodity super cycle is gathering momentum, driven by massive stimulus spending as states gear up for a post Covid-19 world, stronger Chinese growth, and a weaker US dollar spurring strong long-term demand for raw materials.
It’s a very different dynamic to the last recorded mining super cycle, which was propelled chiefly by China’s enormous requirements for raw materials during rapid industrialisation from the early 2000s, a sustained demand that suppliers battled to meet.
Talk of a super cycle is probably premature, but there are many green shoots that should be cause for optimism.
Gold was one of the strongest performers of 2020, beginning the year at USD 1,548.75/oz before hitting record highs of USD 2,067.15/oz. on 6 August. The PGMs rhodium and palladium also performed well, as did iron ore and copper, and more. South Africa was well placed to capitalise on many of these minerals as the top PGM producing country and among the world’s largest producers of gold and iron ore, and other metals.
And whereas the longevity of hydrocarbon commodities like oil and coal is tied to how soon and how effectively countries can transition to green energy, metals will continue to play a central role in the products we create in the future.
2021 Changes to Carbon Tax
South Africa’s own path to a more sustainable society has also been amended.
To support the country’s climate change commitments, the carbon tax rate increased by 5.2%, from R127 to R134 per tonne of carbon dioxide equivalent, from 1 January 2021.
Government is also considering enhancing the carbon budgeting system to regulate greenhouse gas emission by imposing caps on companies for a five-year period. The composition of a business’ energy profile as a determinant of its long-term profitability is more important than ever.
The is why miners already executing a progressive strategy to lower the carbon footprint and minimising the environmental impact of their operations are already demonstrating a significant business advantage.
Having formed the foundation of the country’s economic development for almost a century, the mining industry is clearly as important as ever to South Africa’s current economic viability and long-term sustainability.
With South Africa boasting a rich portfolio of metals, the demand for which is likely to increase, South Africa’s miners will continue to play an important part in the country’s economic future.
These are exciting times for mining companies.
What is the national budget in 2021?
The consolidated national budget for 2021/2022 is R1 520.4 billion, which represents 25.5% of GDP. The three biggest contributors to the budget are personal income tax (R516 billion), corporate income tax (R213.1 billion), and value-added tax (VAT) (R370.2 billion).
What is the GDP for South Africa in 2021?
South Africa’s gross domestic product is a projected R5 352.2 billion for 2021/2022. This is growth of 3.3% over 2020/2021. In the medium term, the GDP is expected to grow to R5 666.3 billion in 2022/2023, and R5 997.2 billion in 2023/2024.
How much does mining contribute to South Africa’s GDP?
Mining in South Africa contributed approximately R226.2 billion to the country’s gross domestic product in 2019. 155632.07 ZAR Million in the second quarter of 2020
How does mining contribute to the economy of South Africa?
The mining industry contributes R226.2 billion to South Africa’s GDP and directly employs almost 500 000 people.
What are the largest expenses in the national budget?
The five largest expenses in South Africa’s national budget 2021/2022 are basic education (R272.3 billion); health (R248.8 billion); social protection (R229.4 billion); community development (R218.8); and the servicing of debt (R269.7 billion).
How much money does the government make a day?
Government is expected to earn approximately R4.165 billion per day, according to the National Treasury estimate of R1 520.4 billion in government revenue for 2021/2022.
Highlights from Budget Speech 2021
- Real GDP growth is forecast at 3.3% for 2021, 2.2% for 2022 and 1.6% for 2023.
- Total export value is projected to grow at 5.7% in 2021. The export market shrank by -10.9% in 2020.
- Gross national debt represents a current 80.3% of GDP, and is expected to peak to 87.3% by 2023/2024.
- Personal income tax brackets and rebates have been increased by 5%, which is above inflation.