2017 Budget Speech: Importance of tourism and travel finally starting to reflect

Mmatšatši Ramawela

“Although not yet regarded as an economic sector by the Department of Trade and Industry which is something we hope will change, the Budget Speech’s strong mention of travel and tourism is a major vote of confidence for the sector,” Ramawela said.

In his Speech, delivered on Wednesday, 22 February 2017, Minister Gordhan made mention of the government’s plans to provide focused support on labour-intensive sectors including tourism-related services. He announced the allocation of an additional R494 million for tourism promotion as one of the short-term measures to boost investment. This is in addition to the 2016/17 budget allocation to the National Tourism Department of just over R2 billion. He further referred to local initiatives in the tourism and hospitality industry being key to economic progress, quoting a budget tip from Lisa Sheard of the Kruger Lowveld Tourism Association.

Within the constraints of the local and broader global economy, TBCSA agrees with the broad view of the business community that the Finance Minister did not have much room to maneuver but nonetheless delivered an overall balanced budget.

The additional highlights for business, from a travel and tourism perspective, include:

• National Treasury’s decision to leave corporate taxes unchanged: whilst the council is mindful of the ongoing debate about the need for corporate South Africa to demonstrate its commitment to the country’s economy by reinvesting their earnings, it is of the view that this measure will go a long way in helping struggling businesses to keep their doors open - thus helping the economy to grow and creating the much-needed jobs and maintaining existing ones;

• The Minister’s pronouncement on plans to strengthen financial management capacity in municipalities: TBCSA views this as an important focus area, considering that travel and tourism activity takes place in the towns, cities, townships and rural areas. In the council’s view, the success of this initiative will not only benefit residents but business at large;

• Proposed reforms of state-owned enterprises (SOEs): TBCSA commends the government for the efforts made thus far to strengthen strategic leadership and the financial viability of struggling SOEs – with a particular focus on South African Airways (SAA) which has critical role to play in the travel and tourism industry as our national airline carrier. "Leadership and financial challenges within SAA have been ongoing for a long time and the council hopes current efforts to turnaround the national airline will finally yield positive results."

• Emphasis on the enforcement of the 30-day payment policy by government: Considering that the practice of bill backs has presented numerous challenges for the sector, it is encouraging to hear National Treasury taking such a tough stance on this matter;

• Specific reference to public procurement, which is expected to amount to R1.5 trillion over the next three years: In light of the revised Tourism B-BBEE Charter, the new government travel policy, amongst other relevant pieces of legislation around the issue of procurement, the council looks forward to reviewing the details of the Public Procurement Bill and contributing the enhancement of procurement legislation in the country.

Business to remain under pressure

Despite the above-mentioned positive factors, business in the sector is likely to remain under considerable pressure as a result of tax increases in some parts. Excise duties on alcohol and tobacco will increase again this year, putting pressure on pricing for operators in the hospitality sector. Furthermore, the tourism transport sector will also be under pressure as a result of increases in fuel levy and the road accident fund levy.

Ramawela says: “Whilst we understand why National Treasury has opted for increases in this area, our quarterly Tourism Business Index has consistently highlighted the cost of inputs as the greatest negative contributing factor to business performance over the past year. With the imminent introduction of additional taxes such as the sugar tax, the carbon tax and the tyre levy – businesses will be under immense pressure and will be pushed to pass these costs on to the consumer”.

Consumers facing another tough year

In terms of highlights for individual consumers (from a travel and tourism perspective), the Budget Speech points to consumers facing another tough year, despite an improved outlook on economic growth.

Similar to business, the tax increases in the fuel levy will place added strain on households, especially when this is coupled with the stubbornly high inflation rate – placing tremendous pressure on disposable income. Added to this is the introduction of a new personal income tax rate of 45% for high-income earners with taxable income above R1.5 million. Seeing that this new tax bracket will most likely comprise of upper middle-class and high-income earners, i.e. individuals who are amenable to travel locally and abroad, the council says it is likely that the industry will witness a continued decline in domestic travel.

On the positive side, the government is providing some relief in the affordable housing market through an increase in the threshold above which transfer duty is paid – putting some money back into the pockets of consumers.

All in all, TBCSA commends the National Treasury for a balanced budget overall, and particularly on what seems to be a trend of embracing travel and tourism. “It seems the message about the economics of travel and tourism is filtering through the hearts and minds of key decision-makers within cabinet and government, says Ramawela. “Should we continue down this path, we have a great opportunity to emulate economies such as Macedonia, Mauritius and France that have prioritised tourism and are doing well as popular tourist destinations. We now look forward to hearing how the National Tourism Minister plans to deploy the increased funding”.