When Finance Minister Pravin Gordhan concluded his speech he was immediately greeted by a standing ovation from the vast majority of MP’s on both sides of the House as well as the President himself. Somehow he had managed to balance the books and provide for the R28bn in revenue shortfall. Even the ratings agencies made some favourable noises.
Since February 22nd, however, the full implications of the Budget have sunk in and the general view now is far less favourable. To the more fortunate the additional tax is onerous; to the less fortunate the lack of any real growth plans which might lead to more jobs is a serious omission. In that regard, it should be remembered that the job of formulating economic policy with a view to a greater growth trajectory than the country is on at the moment, is not the responsibility of the Finance Minister.
The principle that “tax is a result of growth and not a means to create it”, is, in SA’s case more true now than it has been at any stage during the new dispensation.
The increase of 9.75% in the marginal rate of tax for the approximately 100 000 earning over R1 500 000 a year was one thing but the 33.3% increase in the dividend withholding tax quite another. What effect this will have on investment in companies and the returns to be made still awaits us. Interestingly the increase in this tax was frowned upon by the Black Business Council which quickly picked up on the fact that it was detrimental to Black Economic Empowerment deals funded by loans and repaid by dividends. Such loans would now take longer to repay because of the lower dividends, it said.
On top of that are the usual increases in taxes on alcohol, tobacco, together with a higher fuel levy and the promise of a sugar tax and, of course, a carbon one too.
There was also comment on the implementation of the National Health Insurance scheme which has a planned lengthy roll out over the next seven or eight years. However,taxpayer funding of this highly expensive and problematic plan is likely to start soon. Minister Gordhan mentioned in his speech that a reduction in the current medical aid scheme subsidy is likely to be the start – effectively another tax.
The Free Market Foundation do an exercise each year entitled “Tax Freedom Day”. This is the day in the year when taxpayers effectively stop paying the government and start paying themselves. The current day is calculated at May 19th which is the second worst on record, according to the Foundation.
As South Africans become more highly taxed, currently we are 14th highest in the world, the issue of tax morality will become more relevant. Tax avoidance and tax evasion even, are likely to be on the increase. This will be more pertinent when one considers that the rise in “unlawful” public sector expenditure, which includes that deemed to be irregular, unapproved and wasteful, ballooned from R35bn in 2013 to R59bn in 2015. The figure for 2016 is not yet available because those in respect of Municipalities are not yet in; at National and Provincial level, unlawful expenditure has escalated by 80% to R48bn.
Furthermore, the Public Service wage bill, which is a third of all government spending, is R550 bn. Servicing interest on the country’s debt amounts to R162 bn. Paying state employees and servicing debt now amounts to half of taxpayer funds. Is it any wonder that there is much dismay at the tax increases?
Nevertheless we are not in any way recommending a tax revolt or anything like that. However we are suggesting that our clients take every advantage of the tax concessions available through tax deductible retirement annuity contributions and endowments for those in the higher tax brackets. After all the latter are still taxed at 30% which is a 15% saving on the new upper level of 45%.