“We can turn today’s adversity into opportunities,” stated Minister of Finance Pravin Gordhan as he delivered the 2016 Budget Speech, today.
When asked what was radical about this budget specifically, Gordhan answered by drawing focus to the budget deficit downgrade of 2,4 % intended for the next three years. He further made mention of the intended partnerships with the private sector, and other ‘credible approaches to growth’.
The Minister was also frank about the realisation of the discrepancies in regulatory policy as identified as an attribution to the instability within the economy.
Another focal point was the ‘creative and positive’ approach to tax.
“This year in view of the need to raise additional revenue and reduce the budget deficit, we have paid special attention to the fairness and inclusivity of the tax system. We have also been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context,” stated Gordhan.
Tax
Personal income tax was high on the agenda, as relief in the form of R5,5 billion was announced in favour of the middle to lower income bracket. With this no further increase was announced on top of last year’s one percent for high-income earners. Gordhan did, however, make mention of the ever growing divide in the income bracket and noted that this is aimed to be addressed through capital gains tax (CGT) and transfer duty.
As a follow through he announced that the transfer duty rate on properties above R10 million, would see an increase from 11 to 13 percent. This following last years rate increase decision on properties exceeding the R2 million mark and the inverse of that which saw no duties being paid on properties that came in under R750 000.
“Our current taxes on wealth are under review by the Davis Committee. Higher capital gains inclusion rates are proposed, together with an increase in the annual amount above which capital gains become taxable. Measures are also in place to strengthen the estate duty and donations tax,” noted Gordhan.
The 2016 budget also saw the Minister stating that the controversial retirement tax reforms would not affect pension benefits. Furthermore, there was to be a postponement of the annuitisation requirement for provident fund members for the next two years. Tax benefits, however, will continue to see implementation on the 1 March, for all retirement fund contributions including for that of provident funds. For more, click here.
The implementation of tax-free savings accounts last year were also noted to have paid off, as last year saw a total of R1 billion in savings so far. The Minister further urged anyone wanting to take advantage of this years R30 000 limit for special tax to do so before the end of the month.
A statement by Treasury earlier today saw the detailing of a Special Voluntary Disclosure Programme in respect of offshore assets and income.
“Giving opportunity for non-compliant taxpayers to voluntarily disclose offshore assets and income. With a new global standard for the automatic exchange of information between tax authorities providing SARS with additional information from 2017, time is now running out for taxpayers who still have undisclosed assets,” Treasury said.
Higher Education
Following the recent incessant protest action around student funding issues, higher education funding was a focal point. With the announcement that this sector is set to receive R91 billion over the next four years, this as a result of increase decision of R16,3 billion taken late last year.
The issue of student debt was also addressed in the allocation of R41,2 billion to the National Student Financial Aid Scheme (NSFAS). The breakdown of this was given to be, “R5,7 billion in addressing the shortfall of the zero percent fee increment and R2,5 billion NSFAS to alleviate student debt, while a further R8 billion is set aside for the furthering of studies.”
The bulk of this additional funding is said to be coming from an initiative of reprioritised spending.
“Resources are mostly drawn from compensation budgets, non-essential operational expenditure items and programmes with a history of under spending. Of the funds reprioritised, 58 percent is from national government, and 21 percent is from provincial and local government,” stated Treasury.
Levies
As predicted, the fuel levy has seen a further increase of 30 cents per litre. “An amount of R9,5 billion will be raised through increases in excise duties, the general fuel levy and environmental taxes,” tabled Treasury.
In addition, sin tax is set to increase on alcohol by between 6,7 and 8,5 percent. Cigarettes and tobacco products are set undergo a taxation review in the years of 2016/2017 and is set to increase by between 6,7 and 7 percent.
The new kids on the tax block take the form of the implementation of a sugar tax to take effect from 1 April 2017, this in aid of reducing the excessive sugar intake nationally. As well as the introduction of a tyre levy that will be implemented as of the 1 October 2016.
A popular contender to see an increase in the predictions running up to the budget was that of Value Added Tax (VAT), this however will see no increase as announced by Gordhan. This in light of it being a regressive tax and one that is known to make the lower income bracket suffer more.
Drought Crisis
Another point that got quite the mention was the plan to turnaround the drought crisis that we are currently experiencing nationwide. The reiteration was on the announcement of the R1 billion allocation made last year. “Additional spending will be sourced from stringent cost containment measures,” stated Gordhan.
He went on to make mention of the looming food price increases, and dependant on this process, October could see the increase on social grants in light of this.
Growth rate
In light of the weakening rand, another focal point proved to be that of the expected growth rate. Where last years budget tabled the growth at 1,3 percent, the growth rate has now been revised down to 0,9 percent for this year. Gordhan noted the two biggest stressors to revenue growth specifically to be the debt and wage bills, the debt bill to which they have tabled off to 46% by.
Further mention was made of SMME[JAW1] s and how they were encouraged by private business interaction in terms of local investment opportunities in the country.
State Owned Enterprises
The Minister also included to mention the monitoring of State Owned Enterprise (SOEs), and the continuation into reviewing those whose contract exceeded R10 million. He highlighted that the asset base of these SOEs sits at over R1 trillion and makes up 27 percent of our GDP. This being said, he went further to add that there were currently too many small to medium state owned entities in operation at the moment, and that this would be looked into.
Despite the prevalence of the idea of privatisation in terms of SOEs in the media lately, Gordhan stressed that he had to date made no mention of this and rather that there was consideration into minority equity partners and co-investments with the private sector.
One such SOE that has continued to make headlines lately is South African Airways (SAA), though Gordhan made mention of a possible consideration of a minority equity partner, SA Express, there was no confirmation of a merger as yet. In the vein of restructuring and reviewing of the SOEs and government structures as a whole, Gordhan stated that the appointing of a new board for SAA is essential in moving forward.
Public Infrastructure
The speech tabled the overall expenditure for public sector infrastructure at R870 billion over next three years, Gordhan says this has seen the implementation of a wider spending as opposed to the focus in previous years on Transnet and Eskom solely.
Renewable Energy
Renewable energy programmes will continue expanding and will see the development of coal and gas power stations. Energy investments will also amount to R70 billion this year and R180 billion in the next three years.
Another SOE that has recently made waves, Eskom, has notably been allocated R3 billion of the R5 billion requested, the decision process on the other R2 billion is set to be finalised by the end of March 2016.
National Health Insurance (NHI)
There was little mention on both the implementation and development timelines of NHI but Gordhan denied any halt to the process. Following the chapter released late last year, Treasury is set to publish a NHI White Paper this year.
E-tender portal
The budget also saw the announcement of an e-tender portal to eliminate a print trail and make it generally more accessible to all applicants. Director General of National Treasury, Lungisa Fuzile, declared this to be up and running by April 1 2016. This came in line with the push from Treasury to make the tender process more transparent as well, and encourage public involvement in increasing government accountability.
“Our economic imperative is to ignite inclusive growth. We are strong. We are committed. We are resilient,” Gordhan concluded.