South Africans will be keenly watching Finance Minister Pravin Gordhan deliver the National Budget Speech for 2017 on Wednesday, which will provide clarity on the state of the country’s economy. Following the State of the Nation Address, South Africa has been abuzz with questions about what to expect after a year of an unsteady rand, many voicing concern about fears of tax increases.
Considering the sense of uncertainty surrounding the state of the economy, chief economist at Econometrix, Azar Jammine explains that while the goal of fiscal consolidation has been achieved, there remains a number of key aspects that needs to be addressed, including the improvement in the management of state owned enterprises and the improvement of the economic growth rate.
“The minister of finance has been very successfully in pulling together ‘a team South Africa’; top CEO’s, trade union leaders, and government leaders to forge a common policy goal, but we have limited success in that regard.”
Given the climate of uncertainty, he said that compared to last year, the situation remains unclear.
He said the factors that the general public is directly affected by in terms of the speech relates to areas impacting taxes.
Jammine noted that it is not a question about whether government will raise taxes, but instead begs the question by how much and in which areas will government raise taxes.
“In its medium term budget statement in October, Pravin Gordhan spoke about raising R28 billion in extra tax revenue for this year and R50 billion for this year. The question is where they are going to get that money from,” he stated.
Jammine explains that citizens will be affected differently, depending on how the tax bracket will be increased, where he says it is unlikely that the finance minister will opt to choose the V80 method.
“It is seen to hit the really poor people; even people who don’t earn anything pay tax through V80 when they buy anything, including food and drink.”
The alternatives, includes personal income tax, where the government is aiming to get a half a trillion rand from personal income tax.
“There are different ways that it could raise personal income tax; the first is by not adjusting the tax rate upward. This means that when people do get a salary increase, although the tax rate at different levels may not change, they move up the tax ladder and pay a higher proportion on their income – known as fiscal drag.”
He says that if the government is to do nothing to the tax table in the face of six per cent inflation rate, they are likely to raise around R15 billion in additional revenue.
As second option, Jammine says that Gordhan may decide to raise the marginal tax rate on individuals, an option which would results in a relatively small bracket of revenue since few people earn well.
“We will probably get a combination of both; in other words, no full adjustment to the tax tables and some increase in tax to some individuals.”
The other big source of increase in revenue relates to the fuel levy, where the government aims to get R68 Billion from the fuel levy in the year ahead without any adjustment.
He says that if government is to raise the fuel levy by 10 per cent, it would get additional R7 billion in tax revenue.
“At the moment, the fuel levy is R2.85 a litre, so a 10 per cent increase would be 29c per litre on April 5, and 20 per cent would increase the fuel price by 55c a litre. I think that is the easiest way to go because fuel prices have not increased over the last three years…it is better than increasing personal taxes.”
In addition, Jammine notes that citizens can expect to see an increase in smaller taxes, such as sugar tax, carbon tax and transfer duties, but would raise little revenue compared to personal levies.
Tune into VOC 91.3fm at 16:10 as we unpack the 2017 Budget Speech.
Listen live at: http://ndstream.net/vocfm/pc.htm