You and Budget 2015
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It being Minister Nene’s first budget, and
- It will give a good indication as to just how serious the government is about reining in debt. Ratings agencies have indicated that without a commitment to reducing debt South Africa’s national debt could attract junk status.
In a nutshell: How the budget affects you
- Personal income tax increases by 1% as the maximum rate rises to 41%. As many had expected this to rise to 45%, this has been generally well received. The increase does not affect taxpayers with taxable income of R181,900 or less. Over that, at R200,000 taxable income for example the increase is R21 per month rising to R1,105 per month for taxpayers with taxable income greater than R1,1 million.
Taxpayers with incomes of less than R450,000 will be better off whilst those with incomes above this threshold will face higher taxes. This is due to inflation adjusted increases for tax brackets, the tax rebate and the medical rebate.
- The bad news is the price of fuel will increase by 80.5 cents a litre from April. This consists of fuel levy (30.5 cents) and Road Accident Fund (50 cents). Effectively, a large chunk of the fuel savings we have had in recent months will be taken away.
- Sin taxes all go up as expected – see the table.
- There is a sharp drop in the Micro Businesses Turnover Tax with the maximum rate falling from 6% to 3%. This is a significant concession to small business.
- Transfer duty on properties that sell for less than R750,000 has been abolished and will reduce for properties that sell for up to R2,3 million. Above the R2,3 million threshold, transfer duties will rise.
- The foreign exchange allowance for residents has been increased from R4 million annually to R10 million per annum. Families wishing to emigrate may take out R20 million (previously R8 million). This is another important relaxation of exchange control.
- The country will enjoy twelve months of reduced Unemployment Insurance Fund (UIF) contributions. The maximum contribution will drop to R10 per individual. This will put R15 billion back into the economy.
- The government will increase the electricity levy until carbon tax is implemented in the 2017 year. Proposals for pension reform will be released for public comment later this year. National Health Insurance has been agreed to but it has been deferred to another year.
The new tax tables
(If the tables above do not display correctly, please see the “online version” – link above the compliments slip)
Other highlights
- These increases in income tax and fuel levy will add R16.8 billion to tax revenues.
- Expenditure cuts of R25 billion will be made over the next two years. In addition, there is a significant increase in capital expenditure which will underpin future economic growth.
- Economic growth for 2015 will be 2%. This is a reduction from previous forecasts and reflects the energy crisis and uneven global growth. As population growth is 1.2%, this does reflect real growth of 0.8% for the country.
- The budget deficit to GDP (gross domestic product) ratio is 3.9%. In recent years it has been 4.1% so this should give comfort to the rating agencies. The fact that the currency and bond yields did not move during the Minister’s speech indicates that markets were satisfied with the budget.
- Inflation is forecast to fall to 4.3% this year and rise up towards 6% in the following two years. This decrease will encourage consumer spending.
- The budget has endorsed recommendations from the Davis Tax Committee - the drop in tax rates for micro businesses being a case in point. Recommendations to avoid base erosion and profit shifting will also be implemented – this is to counteract companies artificially shifting profits to tax havens.
- No mention was made of privatisation and there were no specifics on selling non-core assets to fund State Owned Enterprises such as Eskom and SAA. The Minister also stated that government is committed to tolls as a means of paying for the improvement and maintenance of roads.
The consensus is that the Minister has delivered a credible budget in difficult circumstances. There are significant risks that can derail the successful implementation of the budget. Salary increase negotiations for civil servants have begun with unions wanting a 15% pay hike and the government providing for a 7% increase. If economic growth falters, this will put pressure on tax collections – for the first time in many years, tax revenue fell short of budget in the current fiscal year.
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