The nation sighed in collective relief after taxes weren’t increased this year. At a press briefing ahead of the Budget speech Finance Minister, Pravin Gordhan, said: “There will be no tax increases as you were anticipating, so boo, we beat you to that one”.
Instead Gordhan highlighted the challenges faced by South Africa in what many have called a conservative 2013 Budget. Much of the blame on the country’s economic woes was laid squarely on the recession experienced in the developing world and last year’s violent strikes. “As we pointed out in the 2012 Budget, global economic uncertainty will remain with us for some time,” said Gordhan.
Here is a round-up of the 2013 budget:
Economic outlook
South Africa’s economy has continued to grow but at a slower rate than projected in the 2012 Budget. “GDP growth reached 2.5% in 2012 and is expected to grow at 2.7% in 2013, rising to 3.8% in 2015,” explained Gordhan.
He said trade performance was holding the country back. “Exports grew by just 1.1% in real terms last year, while imports increased by 7.2%.”
The deficit on the current account of the balance of payments was 6.1% of GDP. “This means, in simple terms, that expenditure in the South African economy exceeded the value of production and income by about R190 billion last year. This is partly a consequence of the disruption of mining sector activity and the structural reduction in mineral exports due to lower demand,” said Gordhan.
Tax proposals for 2013
There was no mention of a hike for high income earners or a super tax as some economists predicted. The tax proposals did however include personal income tax relief of R7 billion, together with adjustments to the medical tax credit and other monetary thresholds amounting to about R350 million.
Young first-time job seekers and small businesses were also winners in this year's Budget. To encourage firms to employ young work seekers a youth employment tax incentive for firms will be tabled for consideration by Parliament said Gordhan. He added that a similar tax incentive will be made available to eligible workers of all ages within special economic zones.
Small businesses will enjoy further tax relief, including an increase in the monetary tax thresholds applicable for small business corporations.
But the tax proposals contained bad news too. Motorists will feel the pinch as an overall increase of 23 cents per litre in fuel levies will commence in April, which includes 8 cents per litre in the road accident fund levy.
Those who indulge in drinks and cigarettes will again see the costs increase in excise duties of between 5.7 and 10%. Beer drinkers will pay 7.5c more per 340ml can, while wine connoisseurs will pay 15c more per 750ml bottle. Smokers will have to cough up an extra 60c for a packet of 20.
Gordhan also announced the introduction of a carbon tax in 2015, together with the phasing-out of the electricity levy.
Social assistance
Several grants saw small increases this year. The old age and disability grants will increase in April from R1, 200 a month to R1, 260. The foster care grant will be boosted from R770 to R800 and the child support grant will increase to R290 in April and jump to R300 a month in October.
The minister made assurances that the initial phase of the NHI development will not place new revenue demands on the fiscus, but added: “Over the long term, however, it is anticipated that a tax increase will be needed.”
Financial reform
Last year, Gordhan said there was a need for South African households to save more. He highlighted five proposals, which will be up for consultation this year:
• A tax-preferred savings and investment account will be introduced in 2015.
• Retirement funds will be required to identify preservation funds for exiting members. Members will be encouraged to preserve their funds when changing jobs.
• Retirement funds will be required to guide members on how to convert their savings into regular income after retirement and will choose or establish default annuity products. Gordhan added that competition will be promoted by allowing providers other than life offices to sell living annuities.
• The tax treatment of pension, provident and retirement annuity funds will be simplified and harmonised.
• Governance reforms of retirement will be implemented to ensure trustees of retirement funds are trained once they have been appointed.
Concern over credit
Gordhan voiced his concern over the rapid growth in unsecured credit, adding that new mortgage lending was falling rapidly and was now less than or almost equal to new vehicle credit and new personal loans. “We will engage with the banking sector to explore how to increase the level and share of new mortgage loans,” he said.
The minister also pointed to the abuse of emolument attachment orders, which has left many workers without money to live on after they have serviced their debts. “We are in discussion with the National Credit Regulator, the Department of Justice and banks, to ensure that the lending market remedies its behaviour. In the meanwhile, all employers including the public sector can play a role and assist their workers to manage their finances and to interrogate all emolument attachment or garnishee orders to ensure that they have been properly issued.”