2020_21 BUDGET

2020/21 BUDGET

This a very short blog.

In my humble opinion, the Budget was good. For property, it means:

  1. Less transfer tax with property less than R1m zero-rated.
  2. More money in the pockets of people who may be 1st-time homebuyers. The tax entry threshold has been increased to R83000 and lower-income tax rates have been reduced.
  3. The Treasury has decided to reduce government expenditure as required by any corporate who has grown their staff to the point of unaffordability. In addition, even though recent declines have occurred in numbers of employees, the wage bill has increased by a real rate of 40% in the past 5 years [I think I’m correct about the time, but I’m definitely correct about the increase].
  4. About R260bn is being cut out of government starting this year over 3 years.
  5. Money has again been allocated to Eskom and SAA; about R160bn. Eskom is simply too big and too important to the country to fail.
  6. Fuel is going up but VAT and Private tax is not. Corporate tax may come down.
  7. “Sin” taxes are up.

Give that man a Bells! Oops, it’s about 30c more expensive ☺

So, if the banks continue to lend and, as we expect, the rates may continue to go down, property will be in the pink.

Now for the bad news…….

  1. Government has blown its budgets for years now.
  2. If Tito fails and the EFF march on Eskom today and the “declaration of war” by Cosatu succeeds to shy away from the resolve of the government and the President, our Debt: GDP ratio, which is already in eye-blinding spheres, will disappear into the stratosphere. There, we will ask the IMF for a bailout or not, but whatever, it will be ugly.
  3. Moodys will probably downgrade us and the ultimate question: Is Junk priced in? will be answered.
  4. The money paid into SAA will be wasteful expenditure ab initio. That into Eskom may just do what it has to and help keep the lights on.

It’s a brave man who calls what will happen but indulge me and let me give it a try…..

  1. I think the Finance Minister will be able to convince the Unions that less is more, and that destroying government is counter-productive for everybody.
  2. SAA business rescue will succeed with a very trimmed down airline, or a sale with half the jobs protected and, whichever, the management will be sanguine and professional going forward.
  3. Eskom will tide our way by spluttering through on three cylinders. Private power will increase rapidly and more and more, large public and private institutions will generate their own power. This will place an already battling Eskom under enormous pressure but never again will we be in this one-man-one-power position. None of the major nations I have visited have all their electricity coming from one supplier. In America, with hurricanes and snow tempests, they could not stomach them if they did not have widespread power producers; just makes sense.
  4. Government will come good with repatriations of money stolen by corrupt means, it will prevent wasteful expenditure and SCOPA will prosecute offenders, it will take the pill of salary reductions for staff continuation and it will muddle its way through ANC factions and opposition’s disgusting behaviour. Maybe I’ve just been reading too much Mcebisi Jonas, After Dawn, Hope after State Capture, but I was buoyed by the grip he has on matters economic and the Foreword by Cyril Ramaphosa. They know exactly what to do and that if they do not, the lights will not be the only thing that goes out.
  5. The President’s meeting with business and his urgency for private investment must bear fruit. Off this low base, every R1bn will count towards growth.
  6. As I write the stock markets have plunged and the Rand has followed suit. The only good news [for the wrong reason, of course] is the Fuel price. The downgrade may affect already-scared sentiment, but right now Corona has terrified the world. I thought the 58% theoretical infection of the global population was unlikely. But it’s creepy at the moment. Who knows but that Corona will dissipate and a downgrade will be lost in the noise of it and then we’ll rise up again? Truth is I have no idea but I sure do hope so. In the meantime let your nervous twitch cause you to wash your hands frequently and touch anything but your face.
  7. I think the banks will continue to lend, but the rate will need to remain so as to protect the Rand somewhat. Bond investors will continue to call for a world-beating rate differential but that certainly is already priced in. It seems the Citi World Bond Index investment may only be about $8bn so that will not affect us too much.

Motherhood and apple pie, my thinking may be. But if you panic, panic first; it’s too late to panic now. So, I would not say, Eat, Drink and be Merry, but certainly let’s understand when things are not under our control and relax in the knowledge, we have done our best.

If the virus begins to be contained and the budget has a shot at implementation, property – our main focus – will benefit and things will improve again. We will hope for that normalcy back in our lives again. In the meantime, spare a thought for China, its neighbours and Italy who all seem to be in the eye of the storm.

Yours in Property.

Jack Trevena

Jack Trevena

With over 30 years of experience in the banking and home loan industry, my hope it is share what I have learnt over the years with my blogging community, inspire conversation around the subject and in the process discover unique insights into this ever changing environment.
Jack Trevena

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