The Budget Speech 2018 took place on Wednesday 21 February 2018, mere days after the first State of the Nation Address (SONA) by President Cyril Ramaphosa.

South Africans rely on the services provided by Government. Future development progress relies primarily on domestic financing channeled through the National Budget. Understanding how these resources are invested, and maximizing their impact, requires budget transparency.  Budget 2018 has been a positive step towards maintaining and improving budget transparency, including promoting appropriate public consultation. This is evidenced by the additional tax amendments the Treasury released, as well as the launch of the online portal Vulekamali.

This is a time of great optimism within South Africa and there is good cause to be positive about most aspects of the National Budget. Finance Minister Malusi Gigaba, taking South Africa’s shrunken revenue flows and heightened distrust of Government into consideration, stated that: “This is the challenge of our time, to build a South Africa in which all people have a decent standard of living, access to economic opportunities and opportunity to pursue their dreams. It is these core aspirations which the Budget must speak to, enable and indeed, advance”.

Presidential committee interference averted

Various commentators have been extremely concerned about interferences by the Presidency, under former President Jacob Zuma, into the affairs of the National Treasury. Specifically, the Budget process was said to be “hijacked” by a presidential committee (PFC), in September 2017 before Zuma’s announcement on tertiary education.

This apparent reallocation of Treasury’s crucial fiscal oversight to the PFC caused National Treasury deputy director-general Michael Sachs to resign from office. It was a dire detraction from the credibility of the institution. The Medium Term Budget Policy Statement which followed in October 2017, was short on facts and seemed to suggest Gigaba had been sidelined in the Budget process. There was a further dismal GDP growth projection of 0.7%. 

However, South Africa has recently experienced quite the shake-up. With President Ramaphosa’s statements in SONA that public servants must put the people first, and that Government wants to “instill a new discipline, to do things correctly, to do them completely and to do them timeously”, there is renewed optimism felt nationwide.

South Africa wins budget transparency award

The Open Budget Index (OBI) international survey biennially measures budget transparency through assessing the availability and comprehensiveness of eight key budget documents. Budget transparency in a nutshell means that citizens can easily and extensively participate in, and engage with, relevant information pertaining to Government revenues, allocations and expenditures. A growing global consensus asserts that managing funds effectively and equitably is best done through open budget systems. This is recognized by various international financial management tools and standards. In 2017, South Africa, from 115 countries surveyed, came first in the world (jointly with New Zealand), as announced by National Treasury in a media statement on 31 January 2018. South Africa has in fact maintained a top three position for the last seven years.

Vulekamali portal launched to increase budget transparency and public participation

While South Africa came first in the OBI survey in terms of transparency at 89%, (maintaining a “gold standard” according to Gigaba), it had a low ranking for public participation with a score of 24%. The OBI report suggested that South Africa needs to improve on mechanisms for public participation in the formulation of the Budget, such as holding more legislative hearings. In direct response to this result, National Treasury launched a new flagship online portal called Vulekamali (meaning ‘Open Money’), on 20 February 2018.  This is intended to provide easily accessible budget data, empowering South Africans with the necessary information on the generation of taxes, budget allocation and spending.

Budget 2018 takes heed of taxpayer concerns regarding past amendments with inadequate consultation

A significant issue in the 2017 tax legislation cycle was that certain problematic amendments were inserted in the 25 October 2017 version of the legislation, without these amendments having been included in the original 19 July 2017 draft, and accordingly without giving taxpayers the opportunity to comment or participate.  Two significant changes that were passed without a proper consultation process were:

• Making the “corporate rollover relief” (business restructuring) rules “subject to” the new “dividend stripping rules”, which taxpayers have argued erodes the purpose and effect of the corporate rollover relief rules (sections 41 to 47 of the Income Tax Act, No 58 of 1962 ); and
• Provisions that give rise to a taxable benefit when there are changes to the terms or conditions of a debt, which taxpayers have argued unfairly taxes economic losses (the “debt reduction provisions” contained in section 19 and paragraph 12Aof the Eighth Schedule to the Income Tax Act).

National Treasury was sympathetic to these concerns during the public workshops in December 2017. 

Taxpayers will be relieved to see that these issues were raised under Annexure C of the Budget Review as being areas where corrective amendments will be made and existing provisions clarified for the upcoming legislative cycle. This acknowledgement of taxpayers’ concerns reinforces Treasury’s expressed commitments to increasing public participation.

The facilitation and encouragement of public participation was clearly punted by Gigaba, who stated: “Looking to the future, true to the South African budget reform approach, we are not seeking the easy way out and our efforts will not be superficial. We are prioritising public participation. We are taking National Treasury further to the people.”

Article by Amy Thompson, candidate attorney in our Tax Practice.