Taxing times for Nene

2015-02-22 15:00

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

Moyagabo Maake and Dewald van Rensburg examine what our finance minister’s first formal dance with SA taxpayers during Wednesday’s full budget speech may yield – and where he’ll step on toes

Employment, energy and infrastructure will loom large in next week’s budget speech.

Finance Minister Nhlanhla Nene will have to regale South Africans with the few good news figures he has to offer.

These include the massive investments happening under the umbrella of the renewable energy independent power producer procurement programme.

This special competitive tender process has secured investments of R120?billion in mostly solar and wind power.

Whether or not Nene will finally reveal the nuts and bolts of Eskom’s approximately R23?billion bailout, which has been on the cards since last year, is anyone’s guess.

This is meant to be funded by the sale of “nonstrategic” state assets, raising the possibility of a rare privatisation announcement in the budget. If this rarity becomes a reality, it will have consequences for Treasury’s promise to keep any and all aid to state-owned enterprises “deficit neutral” – because whatever is put into them must be taken away from something else.

Apart from a speed bump in 2004, taxpayers have enjoyed substantial tax relief since 1995. The music is likely to stop on Wednesday when Nene takes to the parliamentary podium.

In 1995, then finance minister Chris Liebenberg brought about gender parity by removing the child rebate and introduced other measures to cushion the blow for lower-income earners.

Subsequent budgets have delivered a collective R155.8?billion in tax relief to individuals. But Nene is faced with just R886.1?billion in taxes collected last year – less than the R987.2 billion estimated in the previous budget. There’s also a crippling debt burden: gross debt is projected to reach R2.4?trillion by 2018, with repayments currently at R415.6?billion. As outlined in his October medium-term budget policy statement, Nene must find taxes of at least R12?billion to help fund this year’s budget. Tax the rich?

Nedbank economists Nicky Weimar, Dennis Dykes and Isaac Matshego expect this to come partly at the expense of personal income tax.

“Little personal income tax relief is expected,” they said. “There are likely to be hikes in personal income tax rates, with the greatest incidence falling on the higher income tax brackets.”

Barclays estimates that if high-income earners are taxed more on their earnings – for instance by 45% instead of the current 40% – this could raise an estimated R10?billion in taxes.

The bank doubts that Nene will resort to such a “draconian” increase, opting instead for a more modest 42% to raise R4?billion, or the introduction of another tax bracket for the wealthy – those earning more than R1?million a year.

Nene hinted at “policy and administrative reforms” raising the cash needed. The Davis Tax Committee is charged with reviewing tax policy.

“The [committee] was only established by Gordhan in mid-2013, and has needed time to develop its recommendations,” Barclays’ Peter Worthington told City Press.

“So far, there really has been no time to implement anything, except for some changes to the tax regime for small and medium-sized enterprises.”

Companies tax is not expected to increase because this has been an underperformer in recent years. The SA Revenue Service’s latest tax statistics show its relative contribution to the fiscus has declined from a peak of 26.7% in 2008/09 to 19.9% last year. Nene’s mini-budget statement projected a fall to 17.6% this year. The VAT rate will stay unchanged to protect the poor, who would otherwise pay a bigger proportion of their income in taxes. But consumption and “sin” taxes will rise. You can also expect to pay more for petrol to fund fuel levies. Taxes on a can of beer and a packet of 20 cigarettes, which rose by 9c and 68c, respectively, in last year’s budget, are likely to rise again on Wednesday. The wage bill

Treasury has talked tough on the state’s wage bill for a long time. Nene’s predecessor, Pravin Gordhan, announced a general freeze on the size of the public service last year.

Government, broadly defined, budgeted R440?billion for wages in the financial year that ends now. It has budgeted annual increases of 6% from here on out, and any unexpected increase will have to be taken out of something else.

Like every finance minister before him, Nene has the unenviable task of projecting the wage increases for the next three years – knowing full well that negotiations will ultimately result in higher increases than budgeted for.

In his medium-term budget statement last year, Nene repeated the Treasury line that there was no room for anything except an inflation-linked “cost of living adjustment”.

The unions and government are in talks at the moment and the hallmark of the demands this time is an attempt to “roll up” the lowest-paid categories of workers into higher pay grades, which could have a dramatic impact on the wage bill.

On the other hand, the rate at which government employment has grown has already slowed dramatically.

The latest statistics from 2013 showed a 1.4% increase in headcount, to 1.96?million. That was the lowest growth in a decade, and its increase in the total public sector wage bill was 9.2% – also the lowest hike in a decade. Only 1.55?million of these employees are actually in government’s national and provincial departments. The rest work for municipalities and other public entities. The core national and provincial workforce only grew 0.5%. Infrastructure

After wages, infrastructure is the big-ticket item in the budget. The varied performance of the provinces reflects just a small part of the state’s massive infrastructure programme.

Last year, Gordhan promised R847?billion in capital expenditure, spread over three years – or about R280?billion a year.

Most of that money will be spent by Eskom, Transnet, SAA and other smaller state-owned companies. Technically, this expenditure isn’t really part of the budget, meaning “government” is not really spending the R280?billion.

But Gordhan announced last year Treasury would start to more closely monitor spending by state-owned enterprises. On Wednesday, Nene will have to explain if and how this has happened.

The important thing is the ability of both government departments and state-owned enterprises to actually spend their money.

Apart from the delivery of schools, clinics, roads and the bulk economic infrastructure South Africa needs, the capital expenditure is meant to be government’s big boost to the economy – directly through its spending with private suppliers. Dave van der Merwe, an associate director at Deloitte, thinks there are good reasons to believe that only half the infrastructure budget announced ever makes it to the South African private sector. Van der Merwe makes an “indicative assumption” that underspending will probably be about R17?billion within government (not state-owned enterprises), while the infrastructure bill includes imports of big-ticket items such as trains as well as wages paid to workers involved in infrastructure programmes. Jobs, jobs, jobs

The controversial Employment Tax Incentive (ETI), also known as the youth wage subsidy, has now run for a year.

According to President Jacob Zuma’s state of the nation speech, it has gobbled up about double the R1?billion initially budgeted for it.

In a single year, it was used to subsidise more workers than it was meant to in three years.

Nene will announce that the incentive has “benefited” nearly 300?000 workers – and might even say it “created” all those jobs.

Nene must establish exactly how much he is willing to spend on the ETI.

Zuma says 29?000 employers have claimed a collective R2?billion by hiring 270?000 subsidised people since the ETI came into effect on January 1 last year.

The cost of the subsidy has quickly overtaken some of the other major employment projects on government’s books.

The Jobs Fund was launched in 2011 and is getting about R1.3?billion a year that it can pay out in grants to innovative private sector projects with good prospects of creating jobs.

The ETI comes close to matching the cost of the ambitious Community Work Programme (CWP), the second generation of public works “job opportunities” involving less road building and more social and community services. The CWP received R2.3?billion in the current year.

What one question do you want Nhlanhla Nene to answer in his speech? SMS us on 34263 using the keyword BUDGET and tell us what you think. SMSes cost R1.50. Alternatively, talk to us on Twitter (@City_Press) or Facebook (www.facebook.com/citypress.co.za) using the same keyword and then your comment. Please include your name

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.