2017 Budget Speech

In the build up to the South African Budget Speech (2017) the term ‘fiscal consolidation’ was being used on a frequent basis. Finance Minister Pravin Gordhan did not disappoint in this regard.

The budget seeks to raise additional R28 billion in tax revenue and reduce expenditure by R26 million (over a two year period). A rationale provided for this was that South Africa’s national debt currently costs an annual amount of R169 billion to finance. The national debt currently sits at R2.2 trillion (approximately 50% of GDP) and Government seeks to reduce this amount so that more money can be spent on service delivery rather than on debt repayments.

Even with this fiscal consolidation, the budget deficit is expected to be 3.1% this year.

In order to raise the additional R28 billion in revenue:

• A new tax bracket has been created that taxes those with taxable incomes above R1 500 000 per annum at 45%. This will impact approximately 1.4% of personal income tax payers.
• An intervention which will have further reaching implications is that there will be only partial relief for bracket creep as the tax thresholds for personal income tax have been adjusted by a percentage lower than that of average wage inflation.
• Those that hold shares did not escape Minister Gordhan’s budget unscathed as the dividend withholding tax was increased from 15% to 20%.
• ‘Sin taxes’ will increase between 6% and 10%.
• The price of fuel will go up us the fuel levy will increase by 30 cents per litre and the Road Accident Fund (RAF) levy will increase by 9 cents per litre.
• The medical aid tax credit has been increased in line with inflation but may be revised lower in the future to provide additional funding for the National Health Insurance Scheme.
• A sugar tax has also been put forward, however the details are still being ironed out before the motion is submitted to Parliament for acceptance.

On the positive side:

• Middle income households were provided with some tax relief in the property market. The duty free threshold for transfer fees (when purchasing a house) was increased from R750 000 to R900 000.
• The values of social grants were also adjusted, albeit it at a rate below the average headline inflation rate for 2016.

Minister Gordhan spoke of the importance of delivering a budget which assisted poor households and provided additional support and infrastructure to areas which needed them most in pursuit of reducing inequality. A key theme of the budget speech was ‘radical transformation and inclusive growth’ so that more South Africans can be active participants in the economy.

Given the weak economic outlook which predicts slow economic growth, inflation above the South African Reserve Bank’s (SARB) upper limit and a subdued labour market, consumers can expect a tough year ahead.

 Conclusion

The largest interventions to personal income tax have targeted high income individuals. 

However, many tax payers will experience an increase in the taxes that they will pay to the South African Revenue Service (SARS). This could have an impact on industrial relations as tax payers seek larger wage increases to offset this tax increase while business seek to tighten their belts during these difficult economic times.

Ultimately, a compromise will need to be found where the additional tax burden can be spread between employers and employees for the benefit of all.

Written by:

Bryden Morton
Data Manager
B.Com (Hons) Economics
[email protected]

Chris Blair
CEO
B.Sc Chem. Eng., MBA – Leadership & Sustainability
[email protected]