The full alarming detail of the state of the South African economy and especially the precarious state of affairs at electricity provider Eskom, were two of the key themes set out by Minister of Finance, Tito Mboweni, in his maiden budget announcement last week.



  • Government not taking on Eskom’s debt
  • Setting aside R23 billion a year to support Eskom during its “reconfiguration”
  • Support conditional on appointment of a chief reorganisation officer (CRO)



  • GDP growth for 2019 revised downwards from 1.7% to 1.5% (2020: 1.7%; 2021: 2.1%)
  • Tax revenue for 2018/19 to undershoot mini-budget estimate by R15.4 billion, half of this due to higher than expected Vat refunds
  • Consolidated budget deficit to widen to 4.2% in 2018/19 from mini-budget estimate of 4% (2019/20: -4.5%; 2020/21: -4%)



  • No change to personal income tax rates or brackets but a slight adjustment to rebates (revenue of R12.8 billion to be raised this way; collection by stealth)
  • No inflationary adjustment to the medical tax credit
  • No changes to tax rates for corporate income tax or Vat
  • Employment tax incentive of up to R1 000 can be claimed for employees earning up to R4 500 pm (previously R4 000)
  • General fuel levy increases by 15c per litre
  • Road Accident Fund levy increase by 5c per litre
  • Excise duty on cigarettes to rise by R1.14 to R16.66, and 12 cents to R1.74 per can of beer



  • Baseline expenditure adjusted downwards by R50.3 billion since mini-budget
  • Half of the reduction comes from adjustments to spending on compensation
  • Older public servants may retire early and gracefully leading to savings of R4.8 billion in 2019/20; R7.5 billion in 2020/21 and R8 billion in 2021/22
  • Limits on overtime, bonus payments and pay progression planned
  • No salary increases for members of parliament, provincial legislatures or executives at public entities.



A cursory glance at especially the projected economic growth figure clearly indicates that South Africa will experience tough economic times for the short to medium term. Although personal income tax rates were not increased, once people get salary increases, they may enter a new (higher) tax bracket. Which means the salary increase will have to be great to offset the likely higher tax charges.

That, and the increases of various other taxes, for instance, the fuel levy, will place pressure on household budgets which may have the ripple effect of lower expenditure leading to lower retail sales, placing the share prices of retailers under more pressure.

The pressure on retail sales is but one example of an issue that will dampen share prices. Electricity interruptions and expected escalated industrial action as trade unions mobilise against proposed changes to the likes of Eskom will deliver tough trading conditions for many companies and industries.

It is for this reason that we advise strongly – as we have done for the past five years – that investors have a combination of higher offshore exposure together with income funds locally, where appropriate.

The numbers show that the JSE has been underperforming compared to global markets (see graph) – and even several of its emerging market peers – for several years. The realities of the impact of the 2019 budget will heighten the pressure on shares listed on the local bourse. But the investment universe is big and there are many opportunities in other territories to achieve positive returns.

The scenario set out by the Minister of Finance may, for some, be a cause of concern or even panic. Difficult economic times and major global events have delivered market pressure in different regions of the world for decades. Sometimes the recovery is swift and dramatic, at other times slow and gradual. Markets typically do eventually return to positive territory (see our blog of 2015)