South Africa’s slower economy last year resulted in tax revenues falling well short of expectations, and this shortfall must now be dealt with. To ‘balance the books’, government spending will have to be cut even more, and taxes will have to be raised.
In October 2016, it was proposed in the medium-term budget policy statement (MTBPS) that a further R26-billion in reductions to the public expenditure ceiling would have to be implemented over the next two years. New tax measures amounting to R13-billion in the 2017-2018 financial year were proposed. Combined with the higher taxes announced in the 2016 budget, the MTBPS specified that total revenue increases would amount to R43-billion over the next two years.
Last year, the demand for free higher education and the resulting chaos at campuses across the country, placed the funding of higher education under tremendous pressure. In his MTBPS, Finance Minister Gordhan said that an extra R17.6bn would be needed over the medium-term to fund South Africa’s higher education system. Gordhan made it clear that allocations to post-school education and training will be the fastest growing element of the upcoming national budget.
Against this background, South Africans can expect to pay more tax. Higher taxes that were outlined during the MTBPS include:
- higher excise duties
- an increase in the fuel levy and other environmental taxes
- adjustments to capital gains tax and transfer duty
- shifting higher income earners into a higher tax bracket
Perhaps there are some ‘green shoots’ in sight for the economy - Treasury appears to be optimistic that an economic recovery is emerging. There has been a slight rebound in commodity prices, drought conditions have eased, and electricity problems are apparently less of an issue. Thankfully, all three rating agencies (S&P, Moody’s and Fitch) decided at the end of last year to retain South Africa in an investment grade.
Given the events of 2016, and the huge challenges facing our country, the upcoming National Budget promises to be an interesting event.