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28 April 2017 16:02 (South Africa)
Business

In numbers: Budget 2017

  • Marianne Merten
    Marianne-Merten-photo.jpg
    Marianne Merten
  • Business
Photo: Finance Minister Pravin Gordhan and Deputy Minister Mcebisi Jonas, Cape Town, February 24, 2016. REUTERS/Mike Hutchings)

Budget 2017 introduces a new 45% tax bracket for those earning more than R1.5 million a year, cuts government expenditure by R10 billion in the 2017/18 financial year and shifts money from underperforming departmental programmes to those that do perform. Wednesday’s R1.56 trillion Budget comes amid much political noise critical of National Treasury. But the fiscal framework, drawn up in in an almost ten-month process and which involves the ministers’ committee on the Budget has solicited “alignment” when presented in Cabinet hours before Finance Minister Pravin Gordhan delivered his speech in Parliament. “There is enough money in the fiscal system to do what we want – if money is spent properly and we get value for money,” Gordhan later told journalists. By MARIANNE MERTEN

The South African Revenue Service (SARS) at R30.4 billion for the 2016/17 financial year has recorded the biggest collection shortfall since 2009/10, according to the Budget Review. Under SARS commissioner Tom Moyane, tax collection has dropped to R1,175 trillion from the anticipated R1,144 trillion. While there is a concern about tax administration under the current leadership, economic factors like depressed consumer demand, decreased excise taxes due to declining imports, lacklustre employment levels, stressed households who are avoiding new credit, certainly contributed to the gap.

“The tax system is quite crucial to redistribution” to fund, for example, the social grants paid to 17 million poor South Africans,” said Finance Minister Pravin Gordhan in a media briefing ahead of presenting the Budget. “Without the transfer of resources from the well off to the rest of society we will not have the social stability we’ve had.”

And it emerged that a series of meetings with senior SARS managers already has taken place to find “constructive outcomes in the interest of the country”. This includes addressing issues like skills and resources to, for example, ensure tax authorities can deal with those who are using tax planning and even evasion, to avoid paying their share.

But that revenue gap requires increased taxes to raise R28 billion, while government’s expenditure ceiling will be dropped by R10 billion in the 2017/18 financial year, and R13 billion the year after.

“Raising taxes when the economy is struggling is undesirable, but unavoidable given the current fiscal circumstances. Government is acutely aware of the difficult economic conditions facing the majority of South Africans but deferring tax increases by accumulating more public debt would ultimately impose a greater burden on citizens,” said the Budget Review.

There is now a new tax bracket of 45% is introduced for those earning R1.5 million a year, expected to generate between R3 billion to R4 billion in revenue. It is a significant contribution to the overall R16.5 billion raised from increases in personal taxes in the 2017/18 financial year.

An additional R6,8 billion is expected to be generated by increasing to 20%, from 15%, the tax rate on income from dividends.

Indirect taxes like higher sin taxes on alcohol and tobacco, alongside increases in the general fuel levy amount to another R5.1 billion. In addition to the additional 30 cents a litre of petrol in general fuel levy, 9 cents more a litre will be raised for the Road Accident Fund (RAF).

However, tax brackets have been adjusted to allow for bracket creep - effectively a R2.5 billion relief, according to the Budget Review - and the tax-free threshold has been raised to R75,750, from R75,000.

Lower and middle-income households also will get some relief on immovable property transfer duties as the ceiling on such duties kicks in is raised by R150,000 to R900,000 from March 1, 2017. Other relief is found in increasing the medical tax credit to R303 per month, from R286, for the first two dependants.

Social grants are going up: old age pensions by R90 to R1,600 a month for those over 60 and R1,620 older than 75; disability and care grants also increase by R90 to R1,600 a month; foster care grants by R30 to R920 a month and the child support grant increases by R20 to R380 a month.

On the other side of the fiscal framework, government spending is cut by R10 billion in the 2017/18 financial year, and R13 billion in the next year. Government stands at 50.7%, or R2.2 billion, but is expected to drop to 48%. Interest on debt amounts to R169 billion, or the equivalent of 13 cents in every R1 tax collected. The budget deficit is expected at 3.1% in 2017/18, slightly down from 3.4% in 2016/17.

Some of the savings will be found by offering public servants voluntary retrenchment packages - the public wage bill currently accounts for 36% of government spending - and also by not filling posts when people retire. Key to the success of this will be what happens with the new wage settlement due in March 2018. If moderated, then it would boost government efforts.

There are some potential red flags over state-owned entities (SOEs) like SAA, which will have to receive “a bit substantial” government equity, according National Treasury Director-General Lungisa Fuzile, who did not put a number to this as this would emerge only later in the year. “We remain resolute that amount is financed in a deficit-neutral way.”

And the same principle applies if there are demands for new items on the government wish list. “There is a very clear understanding the fiscal framework agreed by Cabinet is what we work with. If there are any new needs… the cash has to come from within the fiscal framework, money from allocations,” Gordhan said.

Some R5 billion have been found towards the end of the three-year budget cycle for higher education for which R32 billion has been provoded. But the message on Wednesday was there needs to be concerted effort to put all the education building blocks in place, and that meant starting with early childhood development and basic education.

With the focus on cities as economic development hubs, R1 billion is transferred to local government in support of public transport corridors and housing development to break the apartheid special distortion which means the poorest live on the margins of urban centres, far away from job and education opportunities.

On the health front, the National Health Insurance fund is to be launched, with a focus on maternal health and providing hearing aids and spectacles. HIV/Aids testing received an additional R885 million, while R600 million goes towards the new Nelson Mandela Children’s Hospital.

Budget 2017 is a tough balancing act in a domestic economic environment where growth is forecast at 1.3% for 2017 and 2% in 2018. Inflation is expected to remain over the 6% top band, dropping to 5,7% only in 2018. Unemployment remains stubbornly high. The political shifts in the United States and United Kingdom alongside uncertainty also in Europe, where several countries go to the polls amid increasing right-wing populist rhetoric, has created an uncertain global environment which also impacts South Africa, according to the Budget Review.

Without significantly boosting economic growth - private investment has dropped 5.9% - a key warning of Wednesday’s Budget is that the constraints and the numbers would not change. Key to transforming the economy for inclusive growth and a social compact that acknowledges the immorality and social injustice of the current inequality, according to the finance ministry team.

Or as the Budget Review puts it: “Transformation is not a zero sum game. The benefits of empowerment should be accessible to all citizens, not limited to connected insiders. This will require action to transform the structure of production and patterns of asset ownership. Government is committed to promoting inclusive economic transformation through fair, transparent and predictable means.” DM

Photo: Finance Minister Pravin Gordhan and Deputy Minister Mcebisi Jonas, Cape Town, February 24, 2016. REUTERS/Mike Hutchings)

  • Marianne Merten
    Marianne-Merten-photo.jpg
    Marianne Merten
  • Business

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