Despite trying circumstances, Finance Minister Pravin Gordhan announced on Wednesday that the budget introduces new tax measures that target the rich and that social spending is prioritised to favour the poor.
In his highly anticipated budget speech, Gordhan announced a new top personal income tax rate of 45% for those with taxable incomes of more than R1.5-million. The withholding tax on dividends will increase from 15% to 20%. The adjustments for bracket creep – when salaries rise with inflation but the tax brackets do not – will be limited.
These three measures alone will bring in almost R23-billion. The balance of R5-billion will come from indirect taxes comprising a fuel levy increase of 30 cents a litre and an added 9 cents a litre for the Road Accident Fund. Excise duties on alcohol and tobacco products will be increase between 6% and 10%.
Although not in Wednesday’s budget, a sugar tax waits in the wings to be implemented later this year, and now could extend to include both intrinsic and added sugars, Gordhan said.
Despite widespread speculation that he may face no other choice, Gordhan successfully avoided hiking VAT to raise the additional tax revenues – a lucrative but politically prickly option.
Instead, departments will experience further expenditure cuts and measures to reduce the public service wage bill are also on the cards.
Gordhan toed the line about “radical economic transformation” but noted that however one phrased it, the matter at hand was about an urgent need to address inequality to realise inclusive growth – an issue growing in prominence locally and globally. The budget, he said, was one critical lever to enact change.
Spending on social services will continue to be government’s priority.
“The division of revenue involves a substantial redistribution of resources from the wealthiest areas in our country – where most of our taxes are raised – to lower-income communities and households. The allocations to predominantly rural municipalities are twice as large, per household, than those to metropolitan councils,” Gordhan said.
The old age grant will increase by R90 to R1600 a month for pensioners over 60 and to R1 620 for those over 75. Disability grans will also increase by R90 to R1600 a month. Child support grants will increase by R20 to R380 a month and foster care grants will increase by R30 to pay out R920 a month.
Treasury made a peace offering to calm the cries for free higher education while it waits for the Commission of Inquiry into Higher Education and Training to finish its work by June this year.
“In addition to the R32-billion we made in the higher education allocations in last year’s budget and the medium term budget policy statement, we have added a further R5-billion in the outer year of the medium-term expenditure framework [the next three years],” Gordhan said. “Government has provided funds to ensure that no student whose combined family income is below R600 000 per annum will face fee increase at universities and TVET colleges in 2017.” Students who has qualified for a National Student Financial Aid Scheme loan would be supported, he said.
Other hot potatoes were noticeably missing from the speech. The delay in the Financial Intelligence Centre Act Amendment Bill was not mentioned. Nor was the alleged bankruptcy of the department of water affairs. Also not mentioned was the looming crisis in the department of social development, which must provide 17-million people with social grants but does not have the mechanisms in place to do so. The current, invalid contract expires on April 1.
Gordhan did touch on the rhetoric of “white monopoly capital” and the growing call to address concentration of sectors in the economy.
“The relationships between labour and capital, rich and poor, black and white, men and women, town and township, urban and rural, still reflect the entrenched legacy of colonialism and apartheid. Wealth is produced and allocated along lines that remain fundamentally unjust,” he said. “The ownership of assets and the distribution of income is captured by a minority of the population – a situation that is morally wrong and economically unsustainable.”
As expected, he tackled the state-owned companies in his speech, noting that the reform of these institutions was an especially important part of the restructuring and strengthening of the economy.
“State-owned companies are governed by a strong legal framework, and Cabinet has endorsed a series of measures to reinforce governance and accountability and clarify their development mandates. This imposes substantial obligations and responsibilities on boards and senior managers. We expect the highest standards of ethical leadership and understanding.”
SAA will require a cash injection but Treasury could not put a number to it yet and details will be provided at a later stage.
Tax revenues for the past financial year are expected to be R1.14-trillion. The budget deficit for the coming financial year will tally 3.1% of gross domestic product (GDP), and will be funded through debt. It remains in line with government’s commitment to fiscal consolidation, Gordhan said. Government debt, he said, would stabilise to 48% of GDP over the next three years. Currently, government debt stands at R2.2-trillion or 50.7% of GDP. Debt repayment costs remain the fastest growing budget item and will account for almost 11% of spending in 2017-18.
In closing his speech Gordhan reiterated his call for South Africans to rally together against corrupt forces: “Obstacles there will be many. Overcome them. Detractors abound. Disprove them. Negativity inspired by greed and selfishness will obstruct us. Defeat the bearers of this toxic ethic. South Africans, wherever you are … own this process; defend your gains; demand accountability. Be an active agent for change. Umanyano Ngamandla [Unity is power].”