SA Budget 2015: Taxes up, up and away

Though government says an increase in personal taxation will not amount to “too much pain”, the bad news is that income tax rates will be raised by one percentage point for all taxpayers earning more than R181,900 a year. The very bad news is that the total fuel levy will increase by 80.5 cents a litre from April. The exceptionally bad news is that it will be more costly to drown your financial woes as sin taxes are up again. Then there’s a proposed increase in the electricity levy. Despite the tough economic outlook, the 2015 Budget has less austerity talk but tighter fiscal discipline matched with some relief for the poor. By RANJENI MUNUSAMY and REBECCA DAVIS.

Finance Minister Nhlanhla Nene has announced an increase in taxes amounting to R17 billion in the 2015/16 budget year and revised spending across the whole of government. Presenting his maiden budget speech in Parliament on Wednesday, Nene said the 2015 tax proposals aimed to increase revenues, limit the erosion of the corporate tax base, increase incentives for small business and promote a greener economy. This is in light of a consolidated deficit of 3.9% of GDP for 2015/16.

Higher taxes had been flagged in the Medium Term Budget Policy Statement last year, and the recommendations of the Judge Dennis Davis tax committee had been fed into this year’s tax proposals. A welcome relief will be that VAT remains unchanged at 14%, but Nene said in a media briefing ahead of the Budget speech that further consultation on VAT was needed.

“We need to take into account what the impact on raising VAT will be,” Nene said.

In the Treasury’s Budget Review, this decision to leave VAT untouched is explained as not to compromise long-term economic growth. While there are large-scale changes to the tax regime, an increase in VAT would have the heaviest impact on poorer consumers, and severe political implications and pressure on the ANC government, particularly from labour ally, Cosatu.

“It is now clear that we can longer postpone consideration of additional revenue measures,” Nene said in the speech. In the Budget Review, it is explained that personal income tax will rise by 1% for all tax brackets, except the lowest, which remains at 18%.

Nene explained at the media briefing that the increase in personal tax was a small percentage which government could implement “without inflicting too much pain”.

If you are below 65 years old and have an annual income of R200,000, for instance, your tax rises is rising by R21 per month. Earn R500,000 per year? You’re looking at R271 more per month. Earners of R1.5 million per year, will be taxed an extra R1,105 per month.

Nene said tax brackets, rebates and medical scheme contribution credits would be adjusted for inflation, as in previous years. “The net effect is that there will be tax relief below about R450,000 a year, while those in higher incomes will pay more in tax.”

The Ministry of Finance had previously stated an objective not to raise corporate income tax, which is realised in this year’s Budget. Small business and middle-income households are getting a boost. Businesses that see less than R335,000 a year in turnover will pay no tax. The maximum tax rate for businesses with a turnover below R1 million is going down from 6% to 3%.

Middle-income households will benefit from the elimination of transfer duties on properties below R750,000. It’s bad news however for luxury homeowners: the transfer duties on properties valued above R2,250,001 is rising to R85,000 plus 11% of property value.

There will not be many laughs on April Fools Day this year for motorists, with the general fuel levy rising by 30.5 cents per litre. There is an additional 50 cents a litre increase in the Road Accident Fund levy, bringing the total fuel levy increases to 80.5 cents a litre.

However one potential silver lining for Gauteng motorists is a possible revision of monthly ceilings to e-toll tariffs. Nene said concerns regarding the socio-economic impact of e-tolls “have been heard”, likely from the inquiry set up by Gauteng Premier David Makhura, and that government would be making a contribution to meeting the road costs in the Adjustments Appropriations later this year.

At the media conference, Nene denied that this contribution would undermine the government policy of the user-pay principle. “The longer it takes to resolve the matter of the e-tolls, the more the situation… becomes a burden on both the company, Sanral (South African National Roads Agency Limited), and the government”. He said Sanral had to remain “credible” and “ready to be able to raise funds”.

While Eskom remains in financial dire straits, the increase in the electricity levies is framed as being driven by the need to reduce demand. Government is considering a temporary increase from the current 3.5c/kWh to 5.5c/kWh – but only for as long as the shortage lasts. Nene said such a levy would both “promote energy efficiency and encourage lower green house gas emissions”. He said the levy would likely be replaced by a carbon tax slated for introduction in 2016.

Government’s support for Eskom, meanwhile, includes a medium-term funding allocation of R23 billion, which will be paid in instalments, with the first transfer to be made in June 2015. It has allocated R18 billion to “electrification funding” to allow 875,000 new households to be connected to the grid.

The 2015 Budget allocates 48% of non-interest expenditure to national government, 43% to the provinces and 9% to municipalities. Nene said allocations to basic services provided by municipalities have been prioritised, “despite the constraints of the budget framework”.

The public service wage bill remains bloated, at about 40% non-interest spending. Nene told journalists this was “concerning”, adding that when more is budgeted for wages than services, it is a “sad situation”. He appealed to government departments to moderate employment growth, particularly in non-core areas.

Nene said the 2015 Budget was “constrained by the need to consolidate our public finances, in the context of slower growth and rising debt”. But one aspect that government is not skimping on is welfare spending. The minister said social grants “play an important role in protecting the poorest households against poverty”.

As a result, old age, war veteran, disability and care dependency grants will increase by R60 to R1,410 per month. Child support grants will increase to R330, while foster care grants by R30 to R860.

As usual, Treasury has increased the excise duties on alcohol and tobacco products. Those with a fondness for spirits will be particularly hard hit with an increase of R3.77 a bottle. A packet of cigarettes will set you back 82 cents more.

Asked whether he was worried about the performance of the Rand, Nene said “it is the volatility more than anything that concerns us”. He said that government did not have any particular level that they wish the Rand to attain, only that the currency should be stable.

With debt growing and revenue shrinking, Nene and the Treasury had little space to manoeuvre in this year’s Budget. But the aim of the Budget, he said, was to “build fiscal space we will require when the economy returns to normal”.

Source: Daily Maverick