Budget 2020

On 26 February 2020, Finance Minister Tito Mboweni delivered the annual budget speech, providing an update on South Africa’s finances. Despite the budget speech highlighting the fragile state of the country’s fiscal position, the finance minister announced some much-needed relief for South African citizens. There were no major tax increases on individuals, while ambitious plans were announced to reduce expenditure over the next three years.

A high-level summary of the key points from the budget speech has been included below:


Revenue and deficits

  • Low growth has led to an R63 billion downward revision to estimates of tax revenue in 2019/2020 relative to the 2019 budget.
  • The consolidated budget deficit is now estimated to be 6.3% for the 2019/20 fiscal year and move lower to 5.7% for the 2022/23 fiscal year, with debt to GDP expected to rise to 72% over this period.

Taking a look at tax

  • There will be above-inflation increases in the personal income tax brackets and rebates (for the first time since 2014) which will provide relief to taxpayers.
  • There will be no changes to the tax-free portion of interest income (R23,800 for under 65’s and R34,500 for over 65’s).
  • The annual limit for investments in tax-free savings accounts will be increased to R36,000 and the lifetime limit will be kept unchanged at R500,000.
  • There will be no change to the corporate income tax or VAT rates, however, the minister announced that the corporate tax system will be restructured over the medium term, with the rate likely to be reduced.
  • The cap on the exemption of foreign remuneration earned by South African tax residents will be increased to R1.25 million from 1 March 2020.
  • In terms of capital gains tax (CGT), the inclusion rate remains at 40%, the annual exclusion remains at R40,000 and the exclusion for the sale of a primary residence remains at R2 million.
  • In terms of transfer duty on property, the purchase amount free of transfer duty increases to R1 million.
  • The deductible monthly medical aid contributions were increased to R319 for the first two members and R215 for each additional dependent.


  • National Treasury announced plans to reduce expenditure by R261 billion over the next three years, including a reduction in the wage bill of national and provincial departments and national public entities of R160 billion.

Levies, duties and charges

  • The fuel levy will be increased by 25c per litre, which will consist of a 16c per litre increase in the general fuel levy and a 9c per litre increase in the RAF levy.
  • Excise duties on alcohol and tobacco will increase by between 4.4% and 7.5%. Government will also introduce a new excise duty on heated tobacco products, which will be at 75% of the cigarette excise rate.

State initiatives

  • Government will move ahead with plans for a sovereign wealth fund, which will initially have a targeted capital amount of R30 billion.
  • The establishment of a state-owned bank will involve the amalgamation of existing state-owned banks, including Postbank, with the aim of lending money to lower-income consumers and small businesses at favourable interest rates and terms.

In closing

Overall, the budget speech was well received by market participants, with both the rand and local bond yields reacting favourably on the day. The budget was largely pro-consumer, with no additional taxes being announced for individuals. In a surprise move, above-inflation increases in the tax brackets for individuals were also announced for the first time since 2014. The business sector will most likely welcome the state’s plans to restructure the corporate tax system over the medium term.

The most ambitious element of the budget speech was no doubt the plan to reduce the public sector wage bill by R160 billion over the next three years. With expenditure on public sector wages currently making up 35% of total expenditure, implementation of this reduction will be key.

Michael Kruger

Investment Analyst

Morningstar Investment Management South Africa

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