The Minerals Council South Africa applauds initiatives in the recent budget that could pave the way for mining sector growth, such as better diesel purchase refunds and carbon tax extensions. However, it warns that the ongoing underperformance of the mining sector threatens future revenue generation. The budget includes significant spending on infrastructure but also reveals challenges with declining mining profitability and increasing tax burdens on employees, which must be addressed for sustainable growth.
The Minerals Council South Africa (MCSA) has responded favorably to the budget presented by Finance Minister Enoch Godongwana on March 12, which signifies potential growth for the mining sector. For the upcoming financial year commencing April 1, the budget permits mining and other primary industries to recoup all eligible diesel purchases, a significant improvement over the previous cap of 80%. Additionally, the Council supports the five-year extension of electricity price neutrality concerning carbon tax, as well as a rise in the carbon offset allowance commencing January 2026.
Despite these positive moves, the MCSA highlighted that sustained economic growth remains critical for enhancing public finances. Hugo Pienaar, chief economist at the MCSA, emphasized that weak GDP growth is mainly due to the underperformance of the mining sector, which limits the government’s ability to compete for revenue against social expenditure demands like the public sector wage bill. He asserted that only through consistent growth can South Africa avert the cycle of tax increases and expenditure cuts.
The mining industry is currently facing profitability challenges, with recent statistics indicating a second consecutive decline in mining profits, contributing to decreased revenue for the Treasury. Provisional tax data predicts a significant contraction of 28% in corporate tax collections from the mining sector for the fiscal year 2024/25. Consequently, revenue from mining and petroleum royalties is also anticipated to decline sharply.
On a constructive note, the budget has delineated plans for substantial public infrastructure investments amounting to R1.29 trillion over the medium-term expenditure framework (MTEF), although there are concerns about an anticipated decrease in infrastructure expenditure growth in the latter part of the framework. The lack of allocation for Transnet’s capital expenditure raises alarms for the mining sector, as improvements to rail infrastructure for mineral exports are essential.
Regarding the potential impacts on mining sector employees, the budget proposes higher personal income tax obligations that will affect workers’ disposable income. Additionally, anticipated increases in the value-added tax (VAT) rate could heighten inflation, with some mitigation strategies in place to soften its impact on essential goods. Furthermore, excise duties on alcohol and tobacco are expected to rise above inflation, while fuel levies will remain unchanged, alleviating some pressure on fuel prices.
Ultimately, unlocking the mining sector’s full potential is crucial to increasing government revenue and economic stability. To achieve this, several fundamental enhancements are necessary, including a stable mining policy, reliable energy supply, advanced rail and port infrastructures, efficient local governance, and a robust approach to combatting crime and corruption. The current global demand for critical minerals presents a prime opportunity for the mining sector to assert greater influence on the South African economy.
In summary, the recent budget announcement presents both opportunities and challenges for South Africa’s mining sector. While measures like diesel refunds and extensions on carbon tax commitments could foster growth, persistent profitability issues and tax income declines must be addressed. The success of the mining industry in contributing to the nation’s economic growth hinges on the implementation of strategic policies, infrastructure improvements, and efforts to maintain a conducive operational environment.
Original Source: www.bizcommunity.com
