Budget tax hike to mildly depress housing market

STRONG expectations of an increase in individual taxation in this week’s Budget, together with higher indirect taxes, were likely to depress residential property market activity, according to industry experts.

Jacques du Toit, a property analyst at Absa Home Loans, believed it unlikely that there would be any direct impact on the housing market from measures announced in the Budget, but there might be indirect effects.

He said hikes in transfer duty were unlikely and an increase in the VAT rate even more unlikely.

However, an increase in personal income tax was widely expected.

“There is a strong possibility that personal taxes will increase because there is a massive gap between government revenue and expenditure,” he said.

Du Toit said that in terms of the medium budget policy statement released in October, the tax revenue the government expected to get from individual taxpayers was expected to increase by 10 percent a year over the next three years.

Further strain

With a poorly performing economy, this would put household disposable income under further strain, he said.

The medium term budget policy statement indicated that personal income tax was expected to increase from the estimated R429 billion in 2016/17 to R472bn in 2017/18, R522bn in 2018/19 and R577bn in 2019/20.

Du Toit said that was a cumulative 34 percent increase in personal tax revenue over the three years with only marginal increases expected in corporate income tax and VAT over the same period.

“It will obviously impact consumers’ finances and work through to the property market. It will cause a negative impact on consumer spending, particularly on big ticket items such as vehicles and property.

John Loos, a household and property sector strategist at FNB, expected the Budget to be mildly negative for the housing market because PAYE (paye as you earn) rates would increase.

“The effective tax rate will go up by not adjusting the tax brackets for bracket blocks are falling into place to return South Africa to fiscal sustainability.”

He said the fiscus still needed additional spending cuts and revenue increases over the next two fiscal years to stabilise the government’s debt ration at around 53 percent of GDP by 2018/19.

Rising debt

“We need to tackle debt. Debt stabilisation is critical since the consolidated fiscal data shows the rising debt level has resulted in a sharp increase in main Budget interest payments from R54.3 billion in 2008/09 when the debt ration was just 28.9 percent of GDP to an estimated R147.7bn in 2016/17 with a debt ratio of 50.9 percent of GDP, at end September 2016.”

He said he also expected creep caused by inflation. It is the most obvious, easy and politically acceptable way to increase taxes.

“It’s possible the top marginal rate could also be lifted,” he said.

Loos said personal and wealth taxes as a percentage of disposable income had been rising over a number of years.

He doubted that there would be any increase in the transfer duty brackets, because there was hardly any house price growth and the National Treasury was looking for revenue.

But a significant increase in fuel tax could have an indirect impact on the housing market.

Loos said the increased transport costs caused by higher fuel taxes could over time make people question where they lived relative to where they worked, resulting in property values in more outlying areas coming under more pressure relative to places that were more favourably located.

Higher fuel taxes could over time make people question where they lived.

“That does not normally happen in one year, but through a sustained increase in fuel taxes over a number of years,” he said.

Azar Jammine, the chief economist at Econometrix, believed there could be negative tax news for the property market in the Budget in terms of an increase in transfer duty, particularly on bigger property transactions, and a hike in capital gains tax.

However, Jammine said that would raise a fairly small amount of revenue compared to increases in personal tax and the fuel levy.

Jammine said an additional R15bn could be brought into government coffers by not adjusting the tax brackets for inflation.

This was huge, even in terms of a hike in the top marginal rate on individuals from 41 percent to 45 percent, which would raise only an additional R7bn, while increasing property transfer duties would bring in less than R1bn, he said. personal income taxes to feature prominently.

FNB economist Mamello Matikinca, said data releases would take a back seat this week as the spotlight fell on Gordhan. He said Gordhan was faced with the unenviable task of treading the fine line between raising taxes and cutting expenditure without compromising economic growth while delicately navigating the political landscape.

“We expect a raft of tax increases aimed primarily at middle and higher income earners, administered through more aggressive fiscal drag as well as increases in the top marginal tax rate brackets. VAT and corporate income tax increases are highly unlikely, and we suspect the minister will keep these two options for the future.”