The winners and losers in Gordhan’s budget 2017

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centred around increased taxation on the country’s wealthy elite. The main tax proposals are: • A new top personal income tax rate of 45% for those with taxable incomes above R1.5 million.

• An increase in the dividend withholding tax rate from 15% to 20%

• Limited bracket creep relief, increasing the tax free threshold from R75 000 to R75 750

• An increase of 30c/litre in the general fuel levy and 9c/ litre in the road accident fund levy.

• Increases in the excise duties for alcohol and tobacco, of between 6% and 10%.

The new tax bracket will impose an increased income tax rate of 4% on those South Africans earning in excess of R125 000 a month. These estimated 103 353 citizens, or 1.4% of registered taxpayers are projected to contribute 26.3% of the total individual income tax for the year. R4.4bn alone will be raised through the new 45% bracket affecting incomes at or above R1.5million.

Gordhan has also closed the loop around any arbitrage that may have arisen by increasing the taxation on dividends by a massive 5%, this effectively creates parity between the taxation rate on salaried income and investment dividends.

South Africa needs to manage this trend carefully, however, as an unbalanced tax base without strong middle and lower growth can lead to capital flight and disinvestment, as the most skilled mobile workforce and capital can easily relocate to more accommodating climates.

The much politicised increases to VAT and Corporate tax rates did not materialise. Currently Corporate tax will remain the same at 28%. This provides some relief to the economy as changes to VAT, while evenly distributed through the economy, will impact the poor the most and have a direct increase effect on inflation, a factor that SA has been aggressively combating with interest rate increases in previous years.

Health and environment taxes

Increased tax pressure on investments and wealth generation needs to be monitored. The increase in dividend taxation to 20% will raise an extra R6.8bn for the government’s coffers, but may prove harmful, as investors in South African companies will now have to hand over a larger share of their earnings.

This places further pressure on a country looking to incentivise foreign investment and stimulate a growth rate able to support South Africa’s economic transformation objectives.

Gordhan announced continued support for the National Health Insurance (NHI) initiative, a programme that could see a proposed part reduction in Medical Aid tax rebates for those able to afford private healthcare, with this revenue then being used to fund some of the NHI revenue requirements.

Efforts are ongoing to implement the proposed Sugar Tax in 2017, while touted as a “Health Tax” the effects on the poor and pricing have yet to be established. Carbon tax is also on the cards and up for debate in Parliament later in the year.

Education has been a topic of much stress in the previous year. The FeesMustFall movement in 2016 brought to light the glaring social imbalances and financial support issues that persist in South Africa’s educational spaces.

Gordhan announced an additional R5bn on top of the R32bn earmarked last year to support the funding crisis in the tertiary education sector. The funding increase will, however, still fall short of the student requirements at universities and TVET colleges.

Gordhan stated, “Given the magnitude of student funding requirements, it is imperative that we develop a clear roadmap towards a better higher education and training system. It must clearly indicate how society will achieve access, opportunity, financing and support for students in the university and further education sectors.”

He further called on the assistance from employers and industry to help assist the government in achieving this objective. The Higher Commission of Inquiry into Higher Education and Training is expected to conclude its work by June this year and deliver an achievable and acceptable plan for the nations embattled education sector.

Government spending

Controversial support for State Owned Entities (SOEs) is ongoing with continued taxpayer support being promised to help assist with the ongoing capital restructuring of SAA and the Post Office. This will be tabled at the Adjustments Budget later in the year.

What was mooted in the presentation by Gordhan was the proposed cost cutting needed in government structures. Government spending has continued to rise as a proportion of GDP despite slow economic growth. Spending has risen from 31.5% of GDP in the 2013/14 tax year to 32.8% currently and is forecast to increase further to 33% in the year ahead. Gordhan has proposed R10bn in government cost cutting for the 2017 budget, but in light of the pressing issues around revenue collection and rising levels of spending on the part of government and increased levels of government debt, will this be enough to stimulate an economy languishing behind its peers in economic growth?

South Africa needs a firm political hand to reduce the volatility in the markets and cutback levels of wasteful government expenditure.

The large tax hikes may further destabilise a struggling economy and the government needs to focus on removing domestic roadblocks to investment and factors constraining economic growth. The ongoing saga of state capture, SOEs and political infighting paints a bleak picture around SA’s progress towards the National Development Plan (NDP) goals.

South Africa has still been unable to demonstrate the ability to effectively grow the economy to support the country’s employment and infrastructure needs.

Social unrest and the demand for a better future coming from all quarters in South Africa over the past year may finally indicate that “government is far too important to be left in the hands of politicians”.

• Ryan Hancocks is the Director of the South African Reserve Bank Centre for Economics Journalism at Rhodes University.