A Budget to put SA on the growth path
INFRASTRUCTURE SPENDING, TAX RELIEF AND SUPPORT FOR SMALL BUSINESS
NEW TAXES for the wealthy, some personal income tax relief for low- to middleincome earners – and a big boost for small-business owners.
That’s the broad thrust of the tax plans unveiled yesterday by Finance Minister Pravin Gordhan.
By committing state spending to the ambitious infrastructure build programme announced by President Jacob Zuma in his State of the Nation address, Gordhan won plaudits from the ANC and its allies, the SACP and Cosatu.
Business also broadly welcomed the emphasis on infrastructure, especially plans for road, rail, port and logistics projects that will unlock logjams blocking economic growth.
Gordhan’s determination to “do more with less” and work harder and smarter to spur growth, create jobs and relieve poverty was welcomed by ANC secretary-general Gwede Mantashe as well as opposition parties.
But virtually across the board, the big question was whether the state could build the capacity it lacked in order to deliver.
Gordhan acknowledged this scepticism as “legitimate” – though at times “overstated” – when briefing journalists before delivering his Budget speech yesterday. He said state machinery would be strengthened over the next few years and that Treasury would keep “an eagle’s eye” on ensuring “that we secure value for money”.
Although Gordhan left personal income tax rates unchanged, he announced a whopping 28c a litre increase in the price of petrol and diesel from April 4, when the general levy on fuel goes up by 20c a litre and the Road Accident Fund levy by 8c to 88c a litre. The electricity levy will go up by 1c a kilowatt hour from July 1.
Gordhan announced R9.5 billion in personal income tax relief, more than half of which will go to people earning up to R22 000 a month to help offset the effects of inflation on earnings. The tax threshold at which income tax kicks in rises from R59 750 a year for people under 65 to R63 556. People over 65 will start paying only once their earnings exceed R99 056 (up from R93 150).
Tax credits for medical aid contributions will kick in from March 1 at a rate of R230 a month for the first two beneficiaries and R154 each for additional ones.
And to encourage people to save more – over and above retirement savings – it will be possible to put away R30 000 a year up to a lifetime limit of R500 000 and pay no tax on interest, dividends and capital gains.
The rich, however, will have to cough up when a withholding tax on dividends from investments, at a rate of 15 percent, is implemented from April 1.
The capital gains inclusion rate for individuals and special trusts goes up from 25 percent to 33.3 percent on March 1, whereas for companies and other trusts it will increase from 50 percent to 66.6 percent.
Middle-income earners will be protected by the raising of exclusion thresholds.
Small-business owners and entrepreneurs win big, with the tax-free threshold being raised to R63 556, above which – up to R350 000 – the 10 percent tax rate drops to 7 percent, offering relief to micro enterprises and start-ups. Micro businesses with an annual turnover of less than R1 million will struggle with far less red tape by being able to pay turnover tax, VAT and employees’ tax twice a year – instead of submitting returns 18 times a year.
Tax dodgers, especially in the construction industry – and complex trusts – are to come under scrutiny.
Gordhan shocked MPS when he said that some of the 34 000 tax advisers owed more than R260m in back taxes, with more than 18 000 of their income tax returns outstanding.
“If that is their attitude to their own tax compliance, one shudders to think what advice they are giving to their clients,” the former Sars commissioner said.
Gordhan told Parliament that 43 major infrastructure projects amounting to spending of R3.2 trillion were in the pipeline. Projects already approved and budgeted for amounted to R845bn to be spent over the next three years – just less than R300bn in the energy sector and R262bn on transport and logistics projects.
Cosatu general secretary Zwelinzima Vavi cited Gordhan’s admission that only 68 percent of a planned R260bn infrastructure spend in 2010/11 had been achieved, amid delays and cost overruns.
Business Unity SA’S Raymond Parsons agreed that there was a risk of “too much money chasing too little capacity”, but noted Gordhan’s appeal to the government and private sector to address this.
DA finance spokesman Tim Harris said Gordhan’s reducing the budget deficit from a projected 5.2 percent to 4.6 percent – thanks to better-thanexpected revenue collection – showed the resilience of the economy. Gordhan could have been bolder: the growth forecast of 2.7 percent, when the global economy was expected to grow by 3.3 percent and Africa’s at 5.5 percent, “was not good enough”.
This, too, was acknowledged by Gordhan, who unveiled plans to cut waste and inefficiency, tighten up procurement processes and provide technical assistance at provincial and local level, which – along with R9.5bn tax relief for low-income earners and breaks for small and micro businesses – was welcomed by the SACP.
The party said it was pleased that “overall, this is not a budget of despair and contraction” but would have liked more tax loopholes exploited by the rich to have been closed.
FF Plus leader Pieter Mulder slated the 20 percent increase in the fuel levy, warning that it would drive up food prices and fuel inflation.
In his speech, Gordhan made it clear that the government could not deal with the triple challenge of spurring growth, reducing poverty and unemployment on its own.
He urged a collective effort, saying the government, business, labour and all South Africans should accept the need for sacrifices and rally behind the plans as a national project.
Although government budgets have had “haircuts”, he signalled to unions that the spiralling publicsector wage bill would be reined in, and indicated that the social wage – the grants paid to more than 16 million people – was stretched about as