Ricochet News

Minister Gordhan trims the fat and taxes the rich. Did he do enough though?

Feb 24, 2017
Minister Gordhan trims the fat and taxes the rich. Did he do enough though?

The finance minister, Mr Gordhan, delivered a budget speech yesterday under the most strenuous of circumstances. Despite facing dual political and economic pressures, the minister had a job to do, and he seemingly did that well.

South Africa currently faces a very difficult economic environment with growth expected to be a vapid  anaemic 1.3% in the current year which is most certainly not enough to keep the economic wheels of SA turning.

The minister forecast increases in revenue collection as percentages of GDP over the next 3 years to marginally increase with further small amounts of GDP growth.

The question South Africans should be asking the minister is whether the two won’t cancel each other out eventually? With GDP growing slowly and unemployment remaining the same (therefore no new jobs) an increase in tax revenue can only go so far. Eventually taxpayers will be paying more and more with no real return to the economy.

So how did this tough environment translate for the individual taxpayer? In the current budget, the minister unfortunately faced no choice of what to do.

He had to look for revenue and looked deep into the pockets of the wealthy. He finely balanced the needs of the not so wealthy and the need to be taxing the rich. The new super tax bracket of 45% means that taxpayers earning more than R1.5m per year will face a much stiffer tax liability.

The minister did not raise the marginal rates on the 18% - 41% brackets and instead provided the smallest amount of tax relief whilst still collecting more money for the fiscus. He went further by increasing the withholding tax on dividends to 20% from the previous 15%, but thankfully left the CGT rates alone.

He rewarded taxpayers for saving by increasing the contribution amount on Tax Free Savings to R33 000, an increase of R3 000 per annum. Taxpayers were met with the usual inflation linked increases in their medical tax credits and travel allowance tables, however ominously though warned that these medical credits might soon be decreasing and not increasing in the future.

Those taxpayers wanting to enter the housing market were given a welcome reprieve in the form of a Transfer Duty minimum threshold increase to R900 000 and travellers for work purposes were given quite an increase in the per km claimable amount of R3.55. Sin Taxes, of course, went up considerably as well, along with fuel levies and RAF contributions. All in all the minister was able to announce tax increases of about R28bn in line with the shortfall.

The major disappointment, however, was no announcement on tax changes for small and medium businesses, the tax rates table provides maximum relief of R52 p.a. now. The VAT threshold was not increased, much to the dismay of small business owners who do struggle with cash outlays month on month.

The minister did unfortunately have very little wiggle room and taxpayers can only hope these levers are pulled next year in order to provide further relief to small business owners.

Overall the minister hit the individual hard as far as the wealthier are concerned. However, those taxpayers who earn a salary, have one or two benefits and continuously save cleverly will see their fortunes having risen ever so slightly in the face of it.

Given the rate of inflation hovering at the 6-7% mark, the slow growth and the minimal tax relief, taxpayers celebrating now that they weren’t hit too badly, should be aware that unless something drastic changes their real income will continue to fall.

The question going forward for the Minister is, “can we be sure the spending plans are sufficiently robust to grow the economy and therefore stave off a further tax increase?”

Image: Member of the  SAICA National Tax Operations Committee, Marc Sevitz.