Budget Speech 2017 targets Foreign Shareholders and the Rich

Finance Minister Pravin Gordhan had a tough message for South Africans in Wednesday’s Budget Speech in the National Assembly, with the introduction of a new tax bracket for the very rich, increasing Withholding tax for foreign shareholders, state debt creeping up and almost all economic indicators and fiscal numbers weaker than in last year’s budget. While South Africa is “once again at a crossroads” and “tough choices have to be made to achieve development outcomes”, Gordhan nevertheless tried to stress the need for growth.

He used the word “transformation” more than 50 times in his speech, but against this background said: “Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.” He also indicated that fiscal consolidation will continue.

An additional ZAR 28bn will be collected in the coming financial year by means of those earning more than R1.5m per year paying 45% of that back to the taxman (the previous top rate was 41%), limited adjustment for bracket creep, a fuel levy rise of 30 cents per litre, a higher dividend withholding tax rate and the usual rise in sin taxes (excise on alcohol and tobacco). There was relief for property buyers with the first ZAR 900 000 (previously ZAR 750 000) of the value of a transaction not liable for transfer duty.

Social grants were increased by about 7% on average.

While it looks like Gordhan made an effort to appease his critics, listening to him was tinged with sadness on the impression that it was his last budget after making a comeback as finance minister just more than a year ago.

The highlights of the budget are:

h3. Macro-Economic Outlook

* Gross domestic product growth will gradually improve from 0.5% in 2016 to 1.3% in 2017 and 2.0% in 2018, supported by improved global conditions and rising consumer and business confidence. The percentages are considerably lower than last year’s estimates. The review says though that greater availability and reliability of electricity should also support stronger growth in 2018/19.
* Exports are expected to grow by 1.9% in 2017, 4.9% in 2018 and 5% in 2019, after estimated negative growth of -1.2% last year.
* After reaching 6.4% in 2016, consumer inflation is expected to decline to 5.7% in 2018.
* The current account deficit, after reaching 4% in 2016, will come down to 3.7% in 2018 and 3.8% in 2019.
* Government will continue to enable investment through regulatory reforms and partnerships with independent power producers.
* Public sector infrastructure bottlenecks will be addressed through reform and capacity building. During 2017/18, government will establish a new financing facility for large infrastructure projects.

h3. Budget Framework

* The budget deficit (consolidated) crept up to 3.4% for 2016/17 from the 3.2% stated in last February’s budget. This was due to less revenue collected than expected. The deficit is expected to narrow to 3.1% for 2017/18 and 2.6% in 2019/20.
* State debt is also steadily creeping up. Debt stock as a percentage of gross domestic product is expected to stabilise at 48.2% in 2020/21 (previously 46.2% in 2017/18, and before that 43.7% in 2017/18).
* The main budget non-interest expenditure ceiling has been lowered by ZAR 26bn over the next two years (almost the same as the ZAR 25bn planned last year).
* An additional R28bn (ZAR 18.1bn last year) of tax revenue will be raised in 2017/18. Measures to increase revenue by a proposed ZAR 15bn in 2017/18 will be outlined in the 2018 Budget.
* ZAR 30bn has been reprioritised through the budget process to ensure core social expenditure is protected.
* Real growth in non-interest spending will average 1.9% over the next three years. Apart from debt-service costs, post-school education is the fastest-growing category, followed by health and social protection.

h3. Specific Spending Programmes

Over the next three years, government will spend:

* ZAR 490bn (ZAR 457bn last year) on social grants.
* ZAR 106bn (ZAR 93.1bn) on transfers to universities, while the National Student Financial Aid Scheme will spend ZAR 54.3bn (ZAR 41.2bn).
* ZAR 751.9bn (ZAR 707.4bn) on basic education, including ZAR 48.3bn for subsidies to schools, ZAR 42.9bn for infrastructure, and ZAR 12.7bn (ZAR 14.9bn) for learner and teacher support materials.
* ZAR 114bn (ZAR 108.3bn) for subsidised public housing.
* ZAR 94.4bn (ZAR 102bn) on water resources and bulk infrastructure.
* ZAR 189bn (ZAR 171.3bn) on transfers of the local government equitable share to provide basic services to poor households.
* ZAR 142.6bn to support affordable public transport.
* ZAR 606bn on health, with ZAR 59.5bn on the HIV/Aids conditional grant.

h3. Tax Proposals

* A new top marginal income tax bracket for individuals combined with partial relief for bracket creep will raise an additional ZAR 16.5bn.
* ZAR 6.8bn will be collected through a higher dividend withholding tax rate. Increases in fuel taxes and alcohol and tobacco excise duties will together increase revenue by ZAR 5.1bn.
* As soon as the necessary legislation is approved, government will implement a tax on sugary beverages. The rate will be 2.1c per gram for sugar content above 4g per 100 ml.
* A revised Carbon Tax Bill will be published for public consultation and tabling in Parliament by mid-2017.
* The first R900 000 of the value of property acquired from March 1, 2017 will be taxed at zero percent. Before March 1, 2017 the first ZAR 750 000 of the value of property was taxed at zero percent.
* The general fuel levy will increase by 30c/litre on April 5 2017. This will push the general fuel levy up to ZAR 3.15/litre of petrol and to R3.00/litre of diesel. The road accident levy will increase by 9c/litre of petrol and diesel on April 5, 2017.
* Personal income tax will bring in ZAR 482bn, VAT ZAR 312bn, company tax ZAR 218bn, fuel levies ZAR 96.1bn and customs and excise duties ZAR 96bn in the coming year.

h3. Sin Taxes

Taxes on alcohol and tobacco, referred to as “Sin Taxes” are set to rise as follows:

* Beer 12c/340ml;
* Fortified wine 26c/750ml;
* Ciders and alcoholic fruit beverages 12c/340ml;
* Unfortified wine 23c/750ml;
* Sparkling wine 70c/750ml;
* Spirits 443c/750ml;
* Cigarettes 106c/packet of 20;
* Cigarette tobacco 119c/50g;
* Pipe tobacco 40c/25g; and
* Cigars 658c/23g.

h3. Social Grants

Spending on social grants is set to rise from ZAR 164.9bn in 2016/17 to ZAR 209.1bn by 2019/20, growing at an annual average of 8.2% over the medium term. The number of social grant beneficiaries is expected to reach 18.1 million by the end of 2019/20.

The specific increases are:

* State old age grant from ZAR 1 505 to ZAR 1 600 per month;
* State old age grant, over 75s from ZAR 1 525 to ZAR 1 620;
* War veterans grant from ZAR 1 525 to ZAR 1 620;
* Disability grant from ZAR 1 505 to ZAR 1 600;
* Foster care grant from ZAR 890 to ZAR 920;
* Care dependency grant from ZAR 1 505 to ZAR 1 600; and
* Child support grant from ZAR 355 to ZAR 380.

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