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South Africa, it’s time to tighten our belts again

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This week’s budget speech by Finance Minister Pravin Gordhan didn’t offer many surprises, and was in keeping with predictions by analysts and experts. It did, however, hit the pockets of the country’s highest earners hard.

BudgetThe creation of a new top tax rate of 45% for individuals earning over R1.5m has sparked concern. However, this new tax bracket is going to raise R4.4bn, and will only affect around 100 000 South Africans.

A director at Werksmans Attorneys expressed disappointment at the creation of what it called “an aggressive” new top tax rate. “We were expecting higher taxes on the wealthy, but this is a larger increase than we thought reasonable. We hope this is not the start of a trend of very high taxes on wealthier individuals, many of whom are mobile and can choose to live anywhere in the world,” said Doelie Lessing in a statement.

Another notable increase was of the so-called “sin taxes”, with a new addition: a sugar tax. Cold drinks with sugar additives will become far more expensive as a result – a move lauded by health organisations who believe that it will help the country’s obesity problem.

The Beverage Association of South Africa (BevSA) has questioned why the government is targeting just drinks rather than the entire processed food industry, arguing that one food item cannot be blamed for the country's obesity issues. However, based on the fact that consumption of carbonated sugar drinks declined in the US by 27% between 1998 to 2015 but more than doubled in South Africa from 1998 to 2012, there seems to method in the government’s madness.

This move will affect the average South African negatively, with all walks of life enjoying sugary drinks, as will hefty increases in the fuel and road accident fund levies which will increase household transport costs.

The good news in the 2017 budget comes mainly for poorer South Africans, with schools, old age and disability grants seeing substantial increases. This is a double-edged sword, though, as the Minister publicly stated that he is working towards getting more South Africans to participate in the economy and earn an income so as to contribute to taxes – particularly income tax.

In his speech the minister warned the country was “at a crossroads” and “tough choices” had had to be made. Despite this, his speech was greeted warmly by politicians, business and individuals alike. In fact, one analyst stated that the speech was almost like a SONA, with a clear-cut vision of what the future holds, and that Gordhan's breakdown of economic transformation made more sense than the message President Zuma tried to convey during his SONA.

With government expected to spend R1.56 trillion in the coming year, but only likely to collect R1.41 trillion in revenue, there still doesn’t seem to be enough of the pie to go around – despite Minister Gordhan's measures to try to bring more money in. It looks like South Africans need to brace themselves for another tough financial year.

 Image credit:

Copyright: lovegtrv6 / 123RF Stock Photo

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