SPIRALLING DOWN THE RABBIT HOLE
Once again, many South African’s found themselves disappointed with the result of the year’s budget speech.
Unfortunately, the 2017 Budget Speech proved no different.
Instead of real fixes and proper long-term solutions proposed in order to improve the country’s dismal economic growth, it would appear that the government is again leaning on increasing taxes, particularly for higher income earners.
In his Budget Speech on Wednesday, 22 February, Finance Minister Pravin Gordhan said that we need to do more to redistribute the wealth within the country, particularly because South Africa has massive divides in wealth. He further explained that the country’s tax system is a progressive one, meaning that the more you earn the more you should contribute.
With government debt now standing at R2.2 trillion (or 50.7% of GDP), government has to make up for the deep hole it has dug itself into.
Said Octagon Chartered Accountants: “Taxpayers would have a strong sense of déjà vu after this year’s budget speech – more tax, with higher income earners in the crosshairs, has been on the menu for a number of years. That, while service delivery has not improved and government expenditure and corruption has not been reigned in.”
A new top personal income tax of 45% for those with taxable incomes above R1.5 million will be introduced – this is estimated to affect 100 000 taxpayers – all in a bid for government to raise an additional R28 billion in taxes in order to strengthen the personal income tax system.
The chartered accounting and tax advisory firm further reiterated the need for the government to do something different in order to climb out of its hole: “Was it too much to hope for something different from the norm? Do government really believe recent policies have been working?”
Gordhan placed the blame of our lack of growth with the lack of transformation seen throughout the country. “We need to transform in order to grow. We need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.” He further stated that
But just how does the government plan on bringing about growth and transformation?
“To ensure a balanced and sustainable recovery, we [government] indicated in the Medium-Term Budget Policy Statement that we would raise an additional R28 billion in tax revenues. We also need to reduce spending by a total of R26 billion over the next two years.”
So, what were the main tax proposals taken out of this year’s Budget Speech?
- A new top personal income tax of 45% for those with taxable incomes above R1.5 million per year;
- An increase in the dividend withholding tax from 15% to 20%;
- Limited bracket creep relief – increasing the tax-free threshold from R75 000 to R75 750 taxable income per year;
- An increase of 30c a litre in the general fuel levy,
- An increase in 9c a litre in the Road Accident Fund levy;
- Increases in the excise duties for alcohol and tobacco of between 6%-10%;
- The annual allowance for tax-free savings will be increased to R33 000;
- There will be an increase in the medical tax credit; and
- No transfer duty will be paid on property worth less than R900 000.
With SARS failing to reach its tax revenue target by R30 million, the government has a lot of climbing to do before it sees the light.
Said Octagon Chartered Accountants: “The Minister talked about reducing our current account deficit. We applaud that. But taxpayers would really like to see the ‘deficit’ between higher taxes and lower service delivery also reducing.”
Gordhan stated that “decisive steps are needed to strengthen confidence, investment and growth throughout the country”. Decisive steps are indeed needed. Unfortunately, the steps that government seem to be taking are directing it (and the country) further down the hole.