budget 2016

Budget 2016 – The Key Points

Nitty-gritty of Budget 2016

Yesterday,  Finance Minister Pravin Gordhan gave the budget 2016 speech, wherein he announced how the R1.5 trillion budget would be spent.

What is clear now is that high-income earners can expect a heavier tax burden, while all of us are looking at a pinched next three years. As government struggles to prevent a catastrophic credit rating downgrade, tackle dropping revenues and revive economic growth.

We can anticipate a higher fuel levy, steeper sin taxes on alcohol and tobacco, and decreased government spending. Decreased revenue collection will enable the Treasury to fill any holes in the budget 2016.

Tax Increases

The true pain will hit in upcoming years, as the Treasury reduces the budget deficit at a brisker pace, compared to what was previously projected. The treasury will now limit expansion of the public sector wage bill and impose tax increases. These will total R18 billion in 2016 and R30 billion over the following two years, in order to pick up the pace.

From April onwards, government will freeze public sector employment. This will be done via retrenchments, attrition, early retirement, removing vacant posts and voluntary severance packages. With this approach, government aims to decrease the quantity of public servants by 20 000, and the wage bill by R7.2 billion during the subsequent three years.

Tax increases for 2016 to 2017 will be introduced over a broad base, with higher-income taxpayers bearing the brunt. High earners will only be compensated for around 60% of fiscal drag. Which will amount to them paying more tax. When taxpayers are pushed into higher tax brackets due to inflation, we call this fiscal drag.

Economic Growth

Mr Gordhan stressed the necessity to nurture economic growth and for South Africans from all sectors to “unite as a team”, behind a shared effort to lift the country out of its slump. “We are resolved to restore the momentum of growth,” he asserted.

Growth is the anticipated result of the government’s infrastructure programme. R870 billion will be invested in energy, transport, health, housing and water infrastructure within the ensuing three years.

Naturally, fiscal consolidation was an area of considerable focus for the budget 2016. The aim of which is to stabilise debt as a percentage of gross domestic product (GDP). By way of bolder budget-deficit targets, lower tax increases and reduced spending plans.

The budget deficit is now predicted to drop to 3.2% in 2016 to 2017, 2.8% during 2017 to 2018 and 2.4% within 2018 to 2019, due to dramatically accelerated fiscal consolidation. This is at a far brisker pace than previously outlined for the plan at the 2015 mid-term budget policy statement. The Treasury intends to accomplish this by means of R10 billion in spending cuts and R15 billion in tax increases, from 2017 to 2018 and R15 billion apiece the year after.

Government Spending

This year, true growth in government noninterest spending will be sustained at 0.2%. However, the expenditure ceiling will see a R10 billion cut during 2017 to 2018, and R15 billion in 2018 to 2019. Primarily via a reduction in the public sector wage bill. Over the following three years, on average, government expenditure will grow in earnest at 0.8% yearly. Whereas, from 2015 to 2016, government spending grew by 2.2%.

At the media briefing prior to the budget 2016 speech, Finance Minister Gordhan stressed that no austerity, social grant or other vital service cuts could be expected. Although, there would be a review of government programmes to establish whether or not they were essential, and if they could be postponed.

Over the next three years, R31.8 billion would be allocated to a reprioritisation, in order to cover higher education, the drought and the New Development Bank.

Finance Minister Gordhan also proclaimed that a number of measures would be taken to cut government spending. R5 billion is expected to be saved on the purchase of goods and services within the next three years.

Moreover, Mr Gordhan announced the following for the budget 2016:

  • Managerial and administrative vacancies would be restricted.
  • Transfers for public entity operating budgets would be reduced.
  • A new national travel and accommodation policy would be implemented.
  • Conference costs would be limited.
  • New guidelines for political office-bearers would be introduced, limiting the cost of motor vehicle purchases.

Fuel Levy Increase

The general fuel levy will rise by 30c per litre, which will raise the fiscus by R6.8 billion. Duties on alcohol and tobacco products would be raised by 6% to 8.5%. Thereby raising the fiscus by an extra R1.5 billon and R767 million respectively. Individuals will see effective capital gains tax rise from 13.7% to 16.4%. While companies will see it increase from 18.6% to 22.4%. Sugar-sweetened beverages will be subject to a new tax as of 1st April 2017, in an effort to reduce “excessive sugar intake”.

R1.3 trillion in tax revenue, as a percentage of GDP, is predicted to be 30.2% in 2016 to 2017. Tax revenue fell short by R4 billion in 2015 to 2016, as compared to projections. Provision has not been made for further guarantees for South African Airways (SAA). However, R650 million has been allocated to the South African Post Office for recapitalisation during 2016 to 2017.

Finance Minister Gordhan stated that he and Public Enterprises Minister Lynne Brown had agreed to look into a potential merger of SA Express and SAA. As well as to search for a possible minority equity partner. There would also be a phasing out of inessential state-owned entities.