Tipped as the most important Budget Speech since 1994, the 2016 version, presented by Finance Minister Pravin Gordhan in Parliament on Wednesday, had many expectations to fulfil, not least of which was curbing both national and international concerns about South Africa's economic prospects for the coming years.
The Budget 2016 is filled with strict measures without the austerity many European countries have had to enter, reflecting a positivity similar to that of other Third World economies such as India. Gordhan himself said the budget was a reflection of the general belt-tightening taking place around the world and was also an answer to pleas from the South African population to take serious measures to curb gross expenditure by government and state-owned entities.
The economic challenges this country - and the entire globe - is facing is a real concern and Gordhan made it clear that no measures would be able to shield South Africa from a slowing economy - particularly as a result of drought and other issues such as protracted strikes, slower resource production, and a decline in investment. However, he also expressed confidence that the man on the street, in the office, or on the couch formed the backbone of a country that was 'resilient' and 'creative' enough to survive the poor global economic performance.
Of the most noteworthy measures Gordhan emphasises are large cuts in government expenditure, programs focused on cutting corrupt and expensive tender malpractice, relief for people on the ground and aid for business owners, and an overall focus on fiscal consolidation.
Here are 10 things to take away from this year's budget:
1. Tax for individuals
Despite expectations that individuals would be hard hit by a tax increase this year, this was not to be: personal income tax rates were not raised and neither was VAT. However, it's not all good news, particularly for the wealthy.
2. Additional taxes
Our wallets will still be hit hard by a hefty increase in the fuel levy by 30 cents per litre. Property transfer taxes have increased on properties worth more than R10 million to 13% from 11%. Capital gains tax increases for individuals will see you pay an additional 2.7% over last year's 13.7% while companies will pay an additional 3.8% over last year's 18.6%.
Tax credits for medical scheme contributions have been raised, but you can expect to pay more for those plastic bags, with the levy increasing to 8c per bag from 6c.
And those little luxuries you love such as an evening wine or a morning cigarette? Those will cost you between 6- and 8.5% extra. Gordhan has also proposed a tax on sweetened drinks, to be rolled out in 2017, while a tyre levy will also be introduced on October 1, 2016, in order to aid in responsible disposal and recycling of used tyres.
3. Social grants
Social grants have been increased slightly. Old age grants, old age grants for over 75s, and war veterans grants have all increased by R90 from R1,415 per month, R1,435 per month, and R1,435 per month respectively. Foster care grants have been raised by R30 to R890 per month; care dependency grants by R90 to R1,505 per month; and child support grants by R20 to R350 per month.
4. Public sector spending
Treasury is looking carefully at public expenditure and will be restricting vacant positions filled in the public sector, as well as purging unnecessary positions. This is part of efforts to cut the overall wage bill. The overall expenditure ceiling has been lowered by R25 billion over the next three years, which the Treasury hopes to maintain by the aforementioned wage bill cuts as well as other processes such as smaller transfer limits for operating budgets, compulsory use of an e-tender portal, instructions on conference costs, guidelines limiting the value of vehicles purchased by office bearers to R750,000, in-depth investigations into government leases, and centralised contracts for common services such as banking and ICT services.
Some money has also been reprioritised for more important issues, such as the New Development Bank and higher education.
5. No more government bailouts of state entities
Gordhan called for unnecessary entities to be phased out or combined in order to save money to be used elsewhere. He also hinted that it was poor policy to raise tariffs simply so entities are comfortable - a strike at Eskom's continued tariff increase requests - and to continue bailing out state-owned entities that seemed to consistently fail. Both statements are certain to sate at least some of investors' concerns. In an applauded move, he proposed that South African Airways (SAA) and SA Express be consolidated and partnered with a minority equity partner instead of having government investing in four separate airlines. SAA has been one of the largest drains on national resources over the last five years and while Treasury was committed to making the entity profitable, Gordhan made it clear that the amount of guarantees government has made on it and other entities' behalf is a 'going-concern'. There was no provision made for additional guarantees on SAA's behalf. The involvement of minority equity partners was, however, not a move towards privatisation.
6. More help for those suffering from the drought
Additional money has been set aside in the Land Bank to deal with the drought plaguing South Africa's farmers. An additional R6 billion has also been made available to improve the State's ability to respond to disasters and emergencies.
7. Reform of retirement funding industry
The aim of reform is to ensure that members' interests are protected and that their funds are not disseminated unnecessarily due to administration and other costs. Gordhan assured public servants that this reform will not affect their pension finances. Provident fund members do not have to worry about the compulsory annuitisation requirement yet, as the rollout was postponed for more consultation.
8. Business support
Businesses will gain additional support following this budget announcement, with steps being introduced that will lessen regulatory burdens for investors in business and also the introduction of Invest South Africa to lessen the administrative costs of starting a business.
9. Other good signs
The South African Police Service has R598 million to spend on improving public order policing, following calls for this as a result of what took place in Marikana and the Farlam Commission's recommendations following its inquiry into the incident. Gordhan has also put the brakes on spending for nuclear power, instead focusing on the completion of power stations Medupi, Kusile, and Ingula.
10. Mention of predecessor Nhlanhla Nene
Gordhan mentioned his predecessor during the speech, particularly quoting his statement from the medium-term budget speech that growth will not increase if revenue did not increase, meaning expenditure could not increase. This was certainly a move to recognise the good work Nene had done during his short tenure and also an effort to show investors that Nene's good work will not end with a new Finance Minister.
What Gordhan did not mention...
The e-tolling system in Gauteng is a major point of contention amongst those living in the province. Cosatu for one was hoping that Gordhan would ban the system entirely, urging government to accept that the system was rejected by the public and rather spend money on ensuring that safe, reliable, and affordable public transport was available However, no mention was made of Sanral or the system at all.
12. Expropriation Bill
Gordhan also made no mention of the new Expropriation Bill passed on Tuesday. Although the bill must still be debated and signed into law, it has many landowners concerned about whether their land will be expropriated and how much they will receive in compensation. According to Minister of Public Works, Thulas Nxesi, the courts are to have the final say on the amount of compensation. The only possible link to the Bill in the Budget was a reference to R15 billion set aside for improving farms, expanding opportunities, and the acquisition of land.
Overall, Gordhan's Budget seemed austere without hitting the public hard. The stricter measures introduced for public spending are certain to make investors happy, as will dealing with state-owned entities in a more authoritarian way. However, words are wind and it will be up to the African National Congress-led government to ensure the measures are carried through over the next fiscal year.
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