Tag: budget

By Sibongile Khumalo for Fin24

Government welcomed the signing of a three-year multi-term Public Service wage agreement, although it exceeded the 2018 Medium Term Expenditure Framework by R30bn.

According to the Department of Public Service and Administration, the R110bn provision for the salary adjustments for the period from 2018/19 to 2020/21 was made in the 2018 Medium Term Expenditure Framework (MTEF).

“The 2018 salary agreement exceeds this amount by R30 Billion over the Medium Term Expenditure Framework,” the department said in a statement.

“This then calls for cost containment measures to ensure that the wage bill remains within the existing compensation ceilings,” it added.

The Public Service Coordinating Bargaining Council (PSCBC) last week said 65.74% of trade unions had agreed to salary adjustments and improvements on conditions of service in the sector for three years, from 2018/19 to 2020/21.

For 2018/19 level 1-7 workers agreed to a 5.5% CPI linked increase, plus a 1.5% , the pay would then be hiked by a CPI related rate for the next two year, with an additional 1%.

Government said the agreement was reached after “a long and difficult negotiations process”.

Employees in the level 8-10 scale would get a CPI rate plus 1% for the current year, followed by 0.5% for the next years, while those in the level 11-12 bracket would receive an increment of 0.5% for this year on top of the CPI. The highest grade will only get a CIP rate for the following year.

Also included, is that the housing allowance of R1 200.00, which would be increased annually by the average CPI of the preceding financial year on an annual basis.

The country’s bulging public wage bill has been a major source of challenge raised by international lenders and rating agencies.

“As government we are glad that we have reached another multi-term agreement,” said Minister of Public Service and Administration Ayanda Dlodlo.

She stressed that the negotiations took place amid growing concerns over the escalating public service wage bill and a contracting economy, which pose serious challenges to the already strained government fiscal purse.

“The agreement proves that it is possible for both parties to reach an amicable agreement that puts the stability of the country and service delivery first.”

The adjustments will be effected on the 1st of July of each year.

Discussions reached a deadlock earlier this week, with the Public Servants Association (PSA) demanding a 12% wage increase across the board. Government offered a 7% increase for lower level workers, 6.5% for mid-level employees and 6% for senior managers.

Unions had started tabling demands in September 2017.

What can SA sell?

A Cabinet committee has changed its tune regarding a plan to sell its full R13-billion stake in Telkom to fund the recapitalisation of South African Airways (SAA) and the SA Post Office, it was revealed at the mini budget last Wednesday.

By selling state-owned assets, Treasury aims to avoid breaching its expenditure ceiling by R3.9bn. This comes after its decision to bail out SAA with a R10bn appropriation and R3.7bn recapitalisation of the Post Office.

The change in tune follows Cabinet’s realisation that the opportunity cost of losing its 39.75% stake in Telkom would be too great.

Now, Cabinet is looking at selling departmental assets and expects a cash windfall from its release of 2.6MHz broadband frequency.

Treasury director general Dondo Mogajane told media on Wednesday that they can’t simply ditch all their Telkom assets. “Telkom is a well-performing share, contributing R900m to R1bn in dividends every year,” he said. “It is important that we hold on to that as much as we can.”

Later, Finance Minister Malusi Gigaba revealed in his mini budget speech that government has “decided to dispose of a portion of government’s Telkom shares, with an option to buy them back at a later stage”.

Hang on to Telkom

In an interview with Fin24 following the speech, Mogajane said government owns many assets which are not being used, which can be sold to limit the amount of Telkom shares they sell.

“We are currently looking throughout the whole of government,” he said. “We are engaging with Public Works, we are engaging with the Department of Rural Development in terms of assets that we have.

“Once we have identified all of those, we will make recommendations to the (Cabinet) committee, which will make these hard decisions to sell based on the quantum of what’s needed.”

This Cabinet committee comprises Gigaba, Economic Development Minister Ebrahim Patel, Public Enterprises Minister Lynne Brown, Telecommunications Minister Siyabonga Cwele and Science and Technology Minister Naledi Pandor.

“Our ceiling, as the books indicate, will be breached by R3.9bn, so we will be looking for assets that will clear that by March 31, so that we remain within the ceiling, even for the current year,” said Mogajane.

“For the MTF (medium-term fiscus), we have confirmed that we will not breach the ceiling and that is the commitment we have made.”

Regarding the release of broadband frequency, Treasury said in its mini budget that “the bulk of additional spectrum is ready to be allocated immediately, without requiring the migration of existing spectrum users to digital television”.

“The delay in allocating telecommunications spectrum constrains growth across the economy. Lack of radio frequency limits the ability of businesses to deploy new technologies and contributes to the high cost of broadband,” it said.

“A well-designed spectrum auction can promote transformation and improve competition as new participants enter the market.

“Universal service conditions can improve access for low-income households. And a competitive auction can sharply reduce data costs.”

By Matthew le Cordeur for Fin24

Gigaba staring into R40bn tax hole

Finance minister Malusi Gigaba faces a gaping budget hole — and will have to consider cutting spending, raising taxes and selling state assets if he wants to avoid further ratings downgrades.

The economy he oversees is hampered by a deteriorating growth outlook, partly stemming from a battle for control of the ruling party that’s stoked political uncertainty and deterred hiring and investment.

Gigaba will outline policy changes in his first mid-term budget speech on Wednesday at a time when economists estimate he confronting a R40bn revenue gap.

There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it
“We are entering a very dangerous phase in our budgetary process,” said Lumkile Mondi, an economics lecturer at the University of the Witwatersrand in Johannesburg. “It will be extremely difficult to stick to expenditure ceilings and deficit targets. There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it.”

While the minister is encountering political pressure to allocate money to the national airline and other cash-strapped state companies, a failure to keep government debt and the fiscal deficit in check would put South Africa at risk of having its local debt lowered to non-investment grade — a move that may trigger massive fund outflows. S&P Global Ratings and Fitch Ratings cut the nation’s foreign currency debt to junk in April after President Jacob Zuma appointed Gigaba to his post in place of the respected Pravin Gordhan.

Gigaba said in a 12 October interview the economy is going through a rough patch and the government needs measures on the revenue side and the expenditure side to achieve its budget targets.

Challenges

Bloomberg surveys conducted between 12 and 18 October illustrate the extent of the challenges confronting the minister.

The economy is expected to grow by 0.7% this year and 1.2% in 2018, according to the median estimate of 22 economists. That’s well short of the February budget’s forecasts of 1.3% and 2% expansion. The revenue shortfall for the year to March 2018 is set to reach R40bn, the median estimate of 11 economists shows.

The budget deficit for the current fiscal year is seen at 3.7% of GDP, more than half a percentage point higher than the February budget’s forecast, according to the median estimate of 16 economists.

What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat
Gigaba may reveal how much money he intends raising through additional taxes and asset sales, while saving the details for next year’s budget speech, said Dennis Dykes, chief economist at Nedbank.

While higher taxes, spending cutbacks and asset sales could help South Africa get a temporary reprieve from ratings companies, the country needs a shift in its fiscal policy, said Arthur Kamp, chief economist at Sanlam Investment Management in Cape Town.

“The treasury can only do so much,” he said. “There has to be a very strong drive in other government departments and state-owned entities to improve governance, to improve efficiency and to improve their financial situations. If that doesn’t happen you will just continuously be looking to sell off the family silver.”

Gigaba’s speech comes less than two months before the ANC is due to elect a new leader, who will also be its presidential candidate in 2019 elections when Zuma steps down. Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, the former African Union Commission chairwoman and Zuma’s ex-wife, are the front-runners for the post.

“What we do need is a bit of a miracle in December and that the person who comes in just starts cutting the fat,” Dykes said.

Source: TechCentral

Gordhan’s budget predicament

Budget Speech 2017 is scheduled for 14:00 today – and it may cost Finance Minister Pravin Gordhan his job.

Finance Minister Pravin Gordhan has to weigh the impact of higher taxes and reduced government spending on growth as he tries to keep the country’s investment-grade credit rating.

Political infighting has stifled efforts to boost confidence in the economy and increase growth and therefore tax revenue. Economic expansion probably decelerated to 0.4% last year, according to the central bank, the slowest rate since a 2009 recession. That’s hindered efforts to rein in the budget deficit and limit government debt.

“The only feasible, sustainable way of working ourselves out of this problem is to grow this economy,” said Ernie Lai King, head of taxation at Hogan Lovells in Johannesburg.

In October, Gordhan said tax-policy measures will raise an extra R43-billion ($3,3-billion) and spending will be reduced by R26bn in the next two years to narrow the budget shortfall.

Gordhan may raise personal-income taxes, following former Finance Minister Nhlanhla Nene’s 1 percentage-point increase in the marginal rate in fiscal 2016, according to Andrew Wellsted, head of tax at Norton Rose Fulbright in South Africa. Raising the 14% value-added tax rate is another option, but may prove difficult to implement after a government-commissioned tax-review committee said an increase would hurt growth and inflation.

A 1 percentage-point increase in VAT could raise a much as R15bn annually in additional income, according to Muziwethu Mathema, an economist at KPMGin Johannesburg. Increases in estate duty and a doubling of capital-gains tax could deliver as much as R5bn in extra revenue and are probable given the tone that President Jacob Zuma adopted in his State of the Nation Address, said George Herman, head of South African portfolios at Citadel Investment Services.

Zuma repeated pledges by the African National Congress to use the state to reduce racial inequality and ease poverty. Together with some of his ministers he has called for more government spending on projects such as nuclear power plants.

In October, the National Treasury predicted the budget deficit in the year through March 2018 would narrow to 3.1% of gross domestic product. The gap is likely to be 3.2% in 2017-18, according to the median of 13 economists’ forecasts compiled by Bloomberg. The fiscal shortfall puts pressure to the government to borrow more, adding to debt levels.

Gross debt as a percentage of GDP exceeded 50% for the first time since 1999 in the second quarter of 2016, central bank data show. S&P Global Ratings sees this ratio reaching 54% of GDP in 2019, it said in December, when it kept the nation’s credit rating at one level above junk.

“He hasn’t been able to control the debt-to GDP-ratio and he would struggle to do that with growth as low as it is,” said Kevin Lings, chief economist at Stanlib Asset Management in Johannesburg.

The International Monetary Fund forecasts GDP expansion at 0.8% in 2017. Gordhan predicted 1.3% in October. Low economic growth rates hurt the country’s fiscal performance and debt stock, according to rating companies.

South Africa must do more than keep its spending under control to prevent being downgraded to junk, Gardner Rusike, an analyst at S&P, said on February 15. Better economic growth is one of the key factors, he said.

Fiscal consolidation isn’t easy and it isn’t popular. It may cost Gordhan his job.

By Arabile Gumede, Bloomberg News for Fin24

VAT hike on the cards

The head of EY’s Africa tax practice has called for the finance minister to be bold and increase the Value Added Tax (VAT) rate by two percentage points in February’s budget, arguing that some large companies have long been readying themselves for the costly exercise of changing systems to accommodate a higher rate.

Africa tax practice head Lucia Hlongwane said in an interview this week that basic foodstuffs were already zero-rated to protect the poor and SA’s VAT rate was below the average for the African continent.

She said the VAT rate had been politicised, but the challenge was to bring down the public debt and “we have to take the pain now”.

Most tax practitioners remain convinced that Pravin Gordhan will not go the VAT route to plug the revenue gap when he tables his budget on February 22, with predictions that he will instead get more out of income tax, especially personal income tax, estate duty and a variety of smaller taxes.

“Tax hikes across the spectrum are a must,” Deloitte Africa head of taxation services Nazrien Kader said on Tuesday.

The medium-term budget projected that R28bn of additional tax would need to be raised in 2017-18 even after the expenditure ceiling was reduced by R10bn.

At 14%, SA’s VAT rate is lower than the Africa average of 15.25% and substantially lower than the Organisation for Economic Co-operation and Development’s average of 19.1%.

The Davis tax committee has estimated that an increase of one percentage point would raise an additional R15bn.

Deloitte director Severus Smuts said if the VAT rate were to be hiked, the list of zero-rated items would have to be reviewed to take account of foods households earning R3,000 to R10,000 relied upon.

With SA still at risk of a ratings downgrade, CEO of EY Ajen Sita said while Gordhan “knows how to keep us out of trouble, what we also want to see is new ideas to take us out of our current state”.

Norton Rose Fulbright head of tax Andrew Wellsted said although hikes in capital gains tax and income tax rates at the higher end would not be a surprise, “I don’t think tax will steal the show in this politically charged environment”.

The budget would be closely watched for what the minister would say on spend items such as the nuclear programme, tertiary education fees and National Health Insurance.

By Hilary Joffe for www.businesslive.co.za

High-and middle-income taxpayers are likely to bear the brunt of the tax increases Finance Minister Pravin Gordhan will announce in his budget on 22 February 2017.

Experts are expecting that Gordhan will turn to further increases in the top marginal income tax rate, as well as hiking capital gains tax and estate duty, in his quest to find the extra R28bn of tax revenue he pencilled into his medium-term budget for the 2017-18 tax year.

This is to plug the sizeable revenue shortfall which has resulted from lower-than-expected economic growth. The number may be closer to R30bn since growth may again have fallen short of Treasury estimates, says KPMG chief economist Lullu Krugel.

Gordhan could bring in as much as R12bn-R15bn if he declines to give any relief for fiscal drag, and if he gives only partial relief, as he did in last year’s budget. Fiscal drag occurs when inflation-linked salary and wage hikes move people into brackets with higher effective tax rates.

The proposed sugar tax and a possible “supertax” on companies and affluent individuals are among the other measures being speculated about, as are further hikes in the fuel levy and excise taxes. But few expect the minister will opt for the easiest route to raise a large amount of extra revenue — hiking the rate of value added tax (VAT).

The Davis Tax Committee has said there is room to increase indirect taxes such as VAT, emphasising that if this were accompanied by more pro-poor government spending, the poor might be better off as a result — but an increase would be politically unpalatable.

Judge Dennis Davis said last week that a VAT increase might not be politically close this year but it would certainly come into focus as a medium-term option.

One wild card is the special voluntary disclosure programme — the tax and foreign exchange amnesty — which took effect from October 1 and runs until June, allowing those with undisclosed foreign assets to declare and pay tax and penalties on these.

Sanlam economic adviser Jac Laubscher said in a report that a one percentage point increase in the VAT rate would result in about R22bn in additional tax. Without a VAT hike, “increases in income and wealth-related taxes, including adjustments to marginal rates of personal income tax, will be unavoidable”. Any increase in corporate income tax would be unwise given the imperative to raise the country’s growth rate, Laubscher said.

Nazrien Kader, head of tax at Deloitte, said the minister would have to explore all avenues and there was a global trend to wealth taxes and sugar taxes. But while she expected Gordhan might look to a one-off “surcharge” for companies and high-income individuals, along the lines of the transitional levy the new democratic government implemented in 1995-96, others expect a “supertax” for the wealthy could instead take the form of higher capital gains or dividend taxes, and/or a higher maximum marginal rate.

Macquarie economist Elna Moolman suggests a two percentage point increase in the maximum marginal rate of income tax for people earning more than R1m a year could bring in R4.5bn. She expects a package of tax hikes that will aim to affect lower-income groups as little as possible but will target middle-and high-income taxpayers.

One wild card is the special voluntary disclosure programme — the tax and foreign exchange amnesty — which took effect from October 1 and runs until June, allowing those with undisclosed foreign assets to declare and pay tax and penalties on these.

Davis suggested last year this could raise as much as R10bn-R15bn and he repeated this again last week, saying indications from banks overseas were that this was attainable. It was too early for the finance minister to budget for the special voluntary disclosure programme in the current 2017-18 fiscal year.

The Davis committee has launched a probe into SA’s tax administration system. Davis said it focused on whether the model the Katz Commission recommended in the 1990s was still appropriate in 2017, and whether the revenue service was positioned to implement plans to target high net-worth taxpayers, base erosion and profit shifting.

By Hilary Joffe for www.businesslive.co.za

Finance Minister Pravin Gordhan’s first comeback National Budget, tabled on 24 February in Parliament, was relatively calm and workmanlike one after all the expectations of tax hikes and spending cuts amid tough economic times.

He stressed the need to reaffirm government’s commitment to close the gap between spending and revenue, implementing a plan for stronger economic growth and cooperation between government and the business sector. That should keep the rating agencies that want to downgrade SA’s debt position to junk status temporarily at bay.

Personal income tax rates were not increased as was expected and as Nhlanhla Nene did last year, although about R18-billion more will be collected in 2016/17. This will mostly be through yet another big increase of 30 cents per litre in the fuel levy as well as increases in capital gains tax, property transfer tax and an increase of about 7% in the usual sin taxes (alcohol and tobacco) A new tyre levy and a tax on sugar intake (only next year on sweetened beverages) will also be introduced.

The expenditure ceiling was also cut by R25-billion over the next three years to bring the budget deficit down to 2,4% of gross domestic product by 2018/19, and to stabilise debt as percentage of GDP around 45% of GDP.

The public sector wage bill will be cut, but provision for contingencies like drought relief and additional spending has been made and increases in expenditure on for example on higher education and small business development continue. Gordhan stressed that the government would not burden South Africans with “austerity measures”, and that social grants will also be raised.

The highlights of the budget are:

Budget framework

  • The budget deficit will fall from 3,2% in 2016/17 to 2,4% in 2018/19 (3,9% in 2015/16).
  • Debt stock as a percentage of GDP is expected to stabilise at 46,2% in 2017/18 (43,7% in 2017/18).
  • Government will lower the expenditure ceiling by R10-billion in 2017/18 and R15-billion in 2018/19 by reducing public sector compensation budgets.
  • An additional R18,1-billion of tax revenue will be raised in 2016/17, with R15-billion more in each of the subsequent two years.
  • Government has responded to new spending needs without compromising expenditure limits. An amount of R31,8-billion has been reprioritised over the medium-term expenditure framework period to support higher education, the New Development Bank and other priorities.

Spending programmes over the next three years

  • R457,5-billion on social grants.
  • R93,1-billion on transfers to universities, while the National Student Financial Aid Scheme receives R41,2bn.
  • 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.
  • R108,3-billion for public housing.
  • R102-billion on water resources and bulk infrastructure.
  • R171,3-billion on transfers of the local government equitable share to support the expansion of access of poor households to free basic services.
  • R30,3-billion 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.
  • R10,2-billion for manufacturing development incentives.
  • R4,5-billion for national health insurance pilot districts.

Tax proposals

  • An amount of R9,5-billion will be raised through increases in excise duties, the general fuel levy and environmental taxes.
  • Limited fiscal drag relief of R5,5-billion will be implemented for individuals, focusing on lower- and middle-income earners.
  • Adjustments to capital gains tax and transfer duty will raise R2-billion. The effective rate on capital gains tax for individuals will rise from 13,7% to 16,4%, and for companies from 18,6% to 22,4%. Transfer duty on property sales above R10m will be raised from 11% tot 13% from March1 2016 .
  • Government proposes to introduce a sugar tax on 1 April 2017 to help reduce excessive sugar intake.
  • A tyre levy will be implemented, effective October 1 2016.
  • The general fuel levy will be raised by 30c/litre to R2,85/l for petrol and R2,70/l for diesel, effective April 6 2016. The Road Accident Fund levy will stay the same on 154c/l as it will be replaced by the Road Accident Benefit Scheme.
  • Tax credits on medical scheme contributions are increased to maintain the current level of relief in real terms.
  • The plastic bag levy is increased from 6c to 8c per bag.
  • Personal income tax will bring in 37,5% of government revenue, company tax 16,9%, VAT 25,6% and fuel levies 5,5%.

Sin taxes hikes

Beer 11c/340ml; fortified wine 27c/750ml; ciders and alcoholic fruit beverages 11c/340ml; unfortified wine 18c/750ml; sparkling wine 59c/750ml; spirits 394c/750ml; cigarettes 82c/packet of 20; cigarette tobacco 94c/50g; pipe tobacco 27c/25g; cigars 432c/23g.

Macro-economic outlook

  • GDP growth is estimated 1,3% in 2015, 0,9%% in 2016, 1,7% in 2017 and 2,4% in 2018. This is considerably lower than last year’s estimates.
  • Export growth is expected to grow by 9,5% in 2015, 3.0% in 2016 and 4,6% in 2017 while imports will grow an estimated 5,3% in 2015, 3,7% in 2017 and 4,5% in 2017.
  • Consumer inflation will fall to 4,6% in 2015, accelerate to 6,8% in 2016 and is then forecast to consolidate somewhat at 6,3% in 2017 and 5,9% in 2018.
  • Capital formation is forecast to grow by only 1,1% of GDP in 2015, 0,3% in 2016, 1,4% in 2017 and 2,7% in 2018.
  • Household comsumption is set to grow by 1,4% in 2015, 0,7% in 2016, 1,6% in 2017 and 2,2% in 2018.
  • The balance of payments wil stay in deficit (-4,1% of GDP in 2015, -4.0% in 2016, -3,9% in 2017 and 2018).

Social grant increases

  • State old age grant from R1 415 to R1 505 per month.
  • State old age grant for over 75s from R1 435 to R525.
  • War veterans grant from R1 435 to R 1 525.
  • Disability grant from R1 415 to R 1 505.
  • Foster care grant from R860 to R890.
  • Care dependency grant from R1 415 to R1 505.
  • Child support grant from R330 to R350.

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