Money Matters

#Budget2020: What’s in store for small businesses?

Male and female having a conversation

The end of this tax year and the start of the next is drawing near, with the State of the Nation Address (SONA) to be delivered on 13 February, and the Finance Minister’s Budget Speech for 2020/1 on 26 February just around the corner. Small and Medium Businesses (SMBs) will be listening attentively to hear how the government plans to revive the economy, and what its spending priorities for the coming year will be.

Here are some concerns facing SMBs and how the government might address them.

  1. The tax burden

In his Medium-Term Budget Speech in October 2019, Finance Minister Tito Mboweni gave a grim view of South Africa’s economy and the state of public finances. He emphasised a projected tax shortfall of over R50 billion as one major concern. What’s more, the budget deficit was projected to widen to 5.9% of GDP in the current fiscal year. The national debt now exceeds R3 trillion.

The excessive debt crippling State-owned entities like Eskom, SAA, and the SABC, and the increasing demand for government to invest in infrastructure and social services, means the State needs to find alternate revenue sources. Economists believe that another VAT increase or personal income tax increases – or even both – could be imminent. This is in addition to the usual fuel levies and sin tax hikes.

#Budget2020: What’s in store for small businesses?

Male and female having a conversation

What businesses are listening out for: 

Consumers, and low- to mid-income earners, in particular, are already under immense financial pressure. Tax hikes could reduce their disposable income and throttle economic growth. This would, in turn, put pressure on small businesses because their customers would have less money to spend. Numerous small businesses absorbed the 1% VAT increase, which affected their profitability. The government needs to look for ways to increase revenue by promoting economic growth.

  1. The long payment pipeline

The reputation for extremely slow payment precedes many government departments, State-owned enterprises, and municipalities. Many make their small suppliers wait up to 90 days or longer for payment. This, in turn, makes it difficult for them to pay their own suppliers on time, which can negatively impact their profitability.

The Department of Small Business Development found that, at the end of the last financial year, the total value of invoices older than 30 days and not paid by national departments was R634 million. The total unpaid invoices older than 30 days by provincial departments was R6.5 billion.

What businesses are listening out for:

This concern has been noted in Budget Speeches and State of the Nation addresses in the past. During the SA Investment Conference in Soweto last year, President Cyril Ramaphosa once again called for the government to ensure that their suppliers are paid within 30 days. Small businesses want to hear what tangible solutions – like new regulations and legislation to speed up government payment processes – the State plans to implement.

  1. The load shedding crisis

Not all businesses can afford to buy generators or install solar solutions, and they are feeling the effects of the economic cost of load shedding. Restaurants, bakers, panel beaters, small manufacturers, and other small businesses need power to get work done. But every day that they experience load shedding furthers impedes their profitability and South Africa’s economic growth.

What businesses are listening out for:

Government has approved a range of measures to improve energy security. These include allowing municipalities to procure their own energy, expanding the Renewable Energy Independent Power Producer Programme, and freeing up regulations around self-generation by businesses. The Budget and SONA must translate these policies into action plans and put achievable targets and deadlines in place.

  1. The digital divide

Wider adoption of digital technologies in small businesses could help power efficiency and growth. Digital technology could also assist in integrating small enterprises into the formal economy, which would help them to develop further. Government will need to look at the reasons behind the low adoption of technology, which ranges from the exorbitant cost of data through to the low levels of digital literacy.

What businesses are listening out for:

SONA and the Budget Speech should both address closing the digital divide and look at how to encourage smaller businesses to adopt technology. Initiatives could include educational efforts by institutions like SARS, which would themselves benefit from getting small businesses to adopt digital accounting and payroll solutions, as opposed to the old paper-based approach. It is of utmost importance to speed up the release of high-demand spectrum to network operators to enable the roll-out of mobile broadband.

Making small businesses a priority

With both the World Bank and the International Monetary Fund (IMF) forecasting GDP growth below 1% for South Africa in 2020, there is no doubt that the country faces tough economic times ahead. Many large companies have already announced mass retrenchments in the coming months. If nurtured correctly, small businesses could help close these gaps.

To drive inclusive economic growth, we need to focus on growing our resilient small business sector. Small businesses could thrive with better access to financing and less government red tape, in turn creating jobs and growing wealth.