Budget: a tight squeeze


There was mixed reaction to the Budget speech last week with Finance Minister Pravin Gordhan walking a tight rope between sweetening the bitter pill of austerity measures and appeasing big business, government and macro and micro economic structures.

With Mr Gordhan’s main objective of cutting debt levels, providing some personal income tax relief for lower and middle income earners, and a budget aimed at staving off the much-feared “junk status” credit rating for South Africa, he announced the net national debt would be stabilised by 46.2 percent of gross domestic product (GDP) by 2017/2018 and shaved the GDP forecasts to 0.9 percent for this year, and 1.7 percent for 2017 and 2.4 percent by 2018.

“We need actions not words,” said Mr Gordhan, a message aimed at recovering growth, following a string of protracted labour disputes which has caused a lack of confidence in the economy.

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But the main message for the man in the street was that belt tightening was to be the order of the day and despite increases in social welfare grants (R457.5 billion) and public housing, there appeared to be little relief for those who depend on grants and live in informal settlements.

For Nontombi Mlundu, a backyarder in Wallacedene, the R182.6bn destined to be spent on human settlement and municipal infrastructure means very little.

“I have been waiting for an RDP house for more than 10 years. There have been repeated promises and more promises but I am still here,” she said, as she spoke of years of cramped living and little sign of a light at the end of what seems a never-ending dark tunnel.

The budget too, will further deepen the woes of the indebted with the announced fuel price increase of R30c/litre to R2.85/* and diesel R2.70/* from April 6, which will impact not only on motorists but cause a ripple effect on basic commodities.

Anthony Wright, who runs a garden service in Brackenfell, said there would definitely be some severe belt tightening in his household.

Cooking bulk food and freezing it; cutting down on what he termed were “unnecessary” DStv suscriptions; on an “expensive internet package” and on telephone bills were four ways he and his family of four were planning to shave off what he termed were thousands of “unnecessary” rands on the monthly budget.

If put in a slightly different way, a financial adviser who practices in Brackenfell, Christine Kallis of Kallis and Associates, said the budget demonstrated the need for people to plan and make contingency plans for unanticipated expenses.

Ms Kallis, who has been practising for more than 35 years in the financial industry, said while she thought there was some good news such as cutting costs in the public sector and the reining in of government spending, she said Mr Gordhan’s message, “we cannot spend money we do not have. We cannot borrow beyond our ability to repay,” indicated that on a personal level, indebted individuals need to start working seriously on owing less money.

“The first thing is learn how to save.

“Work from a budget. You cannot spend without seeing how much you actually need. Work out what your priorities are,” she told Northern News.

She added consumers, and particularly cash-strapped consumers, needed to use what’s left after their budgeted expenses for social costs and dining out and “not the other way around.”

While the increased fuel levy will see R18 billion more collected this year and for the tax year of 2017, personal income tax rates were not increased as was expected and as Nhlanhla Nene did last year.

There will also be increases in capital gains tax (up 13.7 percent to 16.4 percent for individuals and 18.6 percent for companies) and property transfer tax on property sales above R10 million will be raised from 11% to 13% from March 1 this year, and an increase of about 7% in the sin taxes (alcohol and tobacco – with cigarettes rising from R12.42 for a pack of 20 to R13.24 and malt beer taxes rising from R73.05 a litre to R79.26).

A new tyre levy and a tax to curb excessive sugar intake (from 2017 on sweetened beverages) is also be introduced.

In other spending over the next three years:

* R93.1 billion will be spent on transfers to universities, while the National Student Financial Aid Scheme receives R41.2 billion.

* R707.4 billion on basic education, including R45.9 billion for subsidies to schools, R38.3 billion for infrastructure, and R14.9 billion for learner and teacher support materials.

* R102 billion on water resources and bulk infrastructure.

* R30.3bn to strengthen and improve the national non-toll road network.

* R13.5 billion to Metrorail and Shosholoza Meyl to subsidise passenger trips and long-distance passengers.

* R4.5 billion for national health insurance pilot districts.

An amount of R9.5 billion will be raised through increases in excise duties, the general fuel levy and environmental taxes.

* Personal income tax will bring in 37.5 percent of government revenue, company tax 16.9 percent, VAT 25.6 percent and fuel levies 5.5 percent.

* It is planned that consumer growth (4.6 percent in 2015), will accelerate to 6.8 percent in 2016 and is forecast to consolidate at 6.3 percent in 2017 and 5.9 percent in 2018.

* Household consumption is set to grow by 0.7 percent in 2016, 1.6 percent in 2017 and 2.2 percent in 2018.