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After a R30bn shortfall in last year’s expected tax receipts, a total swing of R38bn is budgeted in this year’s National Budget. Over two thirds will come from a R28bn increase in tax; the other R10bn from reduced spending. The country’s top 100 000 income earners have been targeted and will carry an effective R11.2bn of the additional tax burden through an increase from 41% to 45% in the top marginal tax rate and from 15% to 20% in dividend withholding tax. – Alec Hogg
Budget in a Nutshell for 2017/18
- Proposed expenditure totals R1.56 trillion.
- Projected revenues amount to R1.41 trillion, up 7%.
- The Budget deficit of R149bn, or 3.1% of GDP, will be borrowed.
- Government debt has risen to R2.2 trillion, 50.7% of GDP.
- Annual interest payments on debt now amounts to R169bn.
- An extra R5bn for higher education will be added to the R32bn previously announced.
- Tax receipts have risen from 27.8% of GDP three years ago to 29.4% in 2016/17. It is forecast to rise to 29.8% in the year ahead.
- Government spending has risen from 31.5% of GDP in 2013/4 to 32.8%. It is forecast to increase to 33% this year.
Tax collection shortfalls
Last year’s tax revenues were R30.4bn below what was estimated in the 2016 Budget, the largest shortfall in revenue since GFC-impacted 2009/10.
Personal income tax generated R15.2bn less than expected; VAT was R11.2bn below target; and in customs duties the shortfall was R6.5bn.
This problem was signaled in October’s Mini Budget, but has grown by more than a third from the R22.8bn shortfall that was expected then. Treasury is making a habit of making over-optimistic forecasts. In last year’s Budget it had to admit to revenues that were R11.6bn below what had been projected the previous year.
2017’s higher taxes of R28bn come from a five sources:
- R12.1bn, will accrue through “bracket creep”. Taxable income thresholds are usually adjusted to offset inflation; this year the adjustment will be minimal.
- R4.4bn will be raised through an increase to 45% in the marginal tax rate on income above R1.5 million. This will affect about 100 000 taxpayers.
- R6.8bn will be raised through the hike from 15% to 20% in the dividend withholding tax, rationalized because the higher marginal tax rate would otherwise offer an arbitrage opportunity.
- R3.2bn will be generated by a net 39c per litre increase in the fuel taxes. Since 2014, tax on petrol has risen from 27% to 36% of the pump price; and for diesel from 28% to 45%.
- R1.9bn comes from increased excise duties for alcohol and tobacco of between 6% and 10%.
Limited tax relief will be provided through:
- There is a marginal increase in the threshold for taxable income (from R75 000 to R75 750) and property transfer duties (from R750 000 to R900 000).
- Allowance for tax-free savings accounts increased to R33 000.
- Medical tax credit is increased in line with inflation, but is in line for a reduction in future as part of financing the National Health Insurance.
Fresh taxes coming soon
- Negotiations continue on the Sugar Tax. It will be implemented later this year.
- The proposed carbon tax and its date of implementation will be considered further in Parliament this year.
Combating tax avoidance
SA will sign a multilateral instrument this year to assist in reducing the scope for aggressive tax avoidance activities by multinationals which will be required to file further information with SARS on cross-border activities from the end of the year.
The offshore tax amnesty has received disclosures of R3.8 billion in foreign assets, which will yield tax revenue of about R600 million. The programme will remain open until the end of August.
Automatic exchange of information between tax authorities worldwide will come into operation in September this year.
OCPO having a practical impact
The Office of the Chief Procurement Officer currently manages 71 transversal contracts covering over 23 000 items worth R61bn. It has achieved:
- Savings of R675 million in 2016/17 on cell phones and vehicle contracts. The vehicle contract alone is expected to save the state between R1 billion and R1.5 billion a year over the medium term.
- In the property leasing sector, savings of between R2 and R3 billion are expected to be realized.
- Collaborative efforts between SITA and National Treasury have led to savings of R2.5 billion over the next three years in the ten largest ICT equipment contracts.
- Working with the Department of Basic Education on cost-effective standards for building design, the average cost of new schools has been reduced from R70 million for 7 500 square meters to R34 million.
Last week Pravin Gordhan met members of the board of South African Airways and earlier with the SA Post Office to discuss turnaround plans. During the next few months, proposals for putting the capital structure of SAA and the Post Office on a sound footing will be agreed.
Financial sector transformation and regulation
Earlier this year new restrictions on credit life insurance were implemented, preventing the sale of retrenchment insurance to people without jobs, for example.
National Government has investigated 135 000 emolument orders against state employees and reduced the number of deductions by 49 000.
Gordhan says as seen recently with the Competition Commission investigation, there is evidence of a collusive culture at trading desks in banks. A dedicated market conduct regulator is proposed in a Bill being put before Parliament.
The Reserve Bank and National Treasury have initiated work on a more comprehensive Financial Markets Review under the leadership of former Deputy Governor James Cross, to build on the Review conducted in 2014.
Three new banks have been granted provisional licences, including the PostBank, and two new stock exchanges. Their business models are based on technological innovation with potential to bring services more cost effectively to more people.
Provincial financial management
Provinces are making progress in cutting costs with spending on non-essential goods and services fell in real terms (after adjusting for inflation) by 7.1% in 2014/15, 6.1% in 2015/16 and is anticipated to decline by 4.5% annually over the medium term. The proportion of provincial spending on personnel has declined to just under 60% in 2016/17.
The budget is highly redistributive to poor and working families. It also redistributes substantial resources from the urban economy to fund services in rural areas.
Three new conditional grants will take effect in 2017/18. They will expand access to early childhood development and improve facilities, provide for increased employment of social workers and improve opportunities for learners with profound disabilities. About two-thirds of the Budget is dedicated to “realizing social rights”.
Government is moving towards the next phase of the implementation of National Health Insurance and is committed to achieving universal health coverage. Eleven NHI pilot projects have “yielded valuable insights”.
An NHI Fund will be established with various funding options considered including possible adjustments to the tax credit on medical scheme contributions. Further details will be provided in October.
Spending on basic education next year will be over R240 billion, or 17.5 per cent of the consolidated budget. Allocations for school building increase at 12.5 per cent a year. Spending on learning and teaching support materials increases by 9.5 per cent over the next three years.
A further R5bn has been added to the R32 billion set aside higher education allocations. Government has provided funds to ensure that no student whose combined family income is below R600 000 per annum will face fee increases at universities and TVET colleges for 2017. All poor students who applied and qualified for NSFAS awards, and who have been accepted by a university or a TVET college, will be supported.
- The old age grant will increase by R90 to R1600 for pensioners over the age of 60, and R1620 for those over 75.
- The disability and care dependency grants also increase by R90 to R1600 a month.
- Foster care grants increase by R30 to R920 a month.
- The child support grant increases by R20 to R380 a month.
Public procurement will amount to about R1.5 trillion over the next three years. New preferential procurement regulations include:
- Where large firms are awarded tenders of R30 million or more, 30% of the contract value must go to small or black-owned enterprises, where feasible.
- Procurement authorities are now empowered to set clear targets to promote black-owned and women-owned businesses, participation of youth and disabled persons and opportunities for rural enterprises and co-operatives.
- South African suppliers will enjoy preference in respect of goods with significant local content, thus supporting job creation.
- The central supplier database is now fully operational. Large numbers of transactions have been identified for further investigation,
- Public service employees who appear to be doing business with the state,
- Supply agreements that reflect the identity numbers of deceased persons
- Payments to bank accounts other than those of the relevant suppliers.
The Finance Minister’s Budget summary:
- While global growth is slightly better, geo-political and economic uncertainties have increased.
- SA’s low growth trajectory provides a major challenge for government and citizens.
- SA needs to radically transform our economy so that we have a more diversified economy, with more jobs and inclusivity in ownership and participation.
- Our financial situation is difficult, but we have still produced a credible budget.
- We need to prioritise our spending better, implement our plans more effectively and make a greater impact.
- We need to build the widest possible partnership to promote consensus and action on a programme for inclusive growth and transformation.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.