NEWS & ANALYSIS

Budget 2021: Opportunity to return to best practice – Agri SA

Tax increases would have to consider current economic environment and potential negative impact

2021 National Budget Speech – an opportunity to return to best practice

22 February 2021

Agri SA is looking forward to the minister of finance, Tito Mboweni’s National Budget Speech on February 24.

The balance between government income (tax revenue) and expenditure is at the heart of the government budget, says KulaniSiweya, Agri SA head of economics. “Rating agencies and financial market role players will want to see a commitment to fiscal consolidation. The fiscus is under severe strain and a further downgrade from credit agencies must be avoided at all cost.”

This is an opportunity to return to best practice, using the right instruments to cut unnecessary expenses without fear or favour. “Whilst fiscal consolidation is crucial, any tax increases would have to consider the current economic environment and the potential negative impact that higher taxes could have on growth,” Kulani urges.

Agriculture has shown that it is a resilient sector that, with assistance from government, can build the economy and increase fiscal stability. From the National Development Plan (NDP) to the more recent Economic Reconstruction and Recovery Plan, there has been overwhelming recognition that the agricultural sector is a sector of growth and has potential to further create job opportunities for rural communities. The sector has remained profitable, despite all the challenges and this aspect should be safeguarded by sound policy framework and implementation thereof, but also leveraging from expertise of commercial farmers across the value chain.

“Minister Mboweni has a lot of pressure on him to make sure that South Africa’s books balance,” says Siweya. “If he wants to grow the economy, the agriculture sector is the key.”

Agri SA is hoping to hear the following elements in Mboweni’s speech:

Land Bank support: Effective and speedy direct assistance to the bank is imperative. To avoid further deterioration of this strategic and key institution, a cash injection by National Treasury will alleviate some liquidity pressure. Cash only is, however, not the only solution. Capacitation of the institution is needed to set it on a sustainable trajectory. This is an opportunity for a public-private-partnership (PPP) to achieve this objective.

Electricity sector reform: Electricity is a key production input for agriculture. Farmers are price-takes and rising electricity costs have a direct impact on our international competitiveness, where farmers must absorb rising input costs. Electricity sector reformsare necessary to resolve the current situation of rising tariffs amidst system supply constraints and load shedding. Reforms should consider the following: o Allowing for greater private sector participation in the electricity sector, specifically to generate electricity for local areas via the low voltage distribution networks. This would allow Eskom to continue its generation and transmission function, whilst allowing the private sector to contribute to localised generation that supports Eskom’s electricity supply, helping to meet demand and avoid load shedding.

Land reform and emerging farmer support: Increased funding for land reform and emerging farmer support is crucial. An outcomes-based funding approach tied to technical and mentoring support should be part of the approach.

Agri Development Fund: Funding and support for the establishment of an Agri Development Fund that can leverage blended finance to support the development of emerging farmers.

Diesel rebate system: Feedback on the proposed diesel rebate system (separating the diesel rebate and VAT systems) to solve the processing and payment delays experienced with the current system.

Support during disasters: Appropriate allocation of funds that will ensure cushioning from impact that unforeseen disasters have on the sector.

Road infrastructure: Allocating funding for effective implementation of road and logistics infrastructure maintenance.

Plans to deal with corruption and poor service delivery: Poorly performing municipalities should be placed under administration to ensure that the available funds are effectively managed.

Limiting excessive increases to excise duties: Excessive increases to excise duties could have an adverse impact on the wine and tobacco industries.

Siweya concludes that Agri SA hopes that the budget will make positive commitments - which will be effectively implemented - towards limiting the budget deficit and supporting economic growth.

Issued by Kulani Siqeya, Agri SA Agricultural Economist, 22 February 2021