Is the budget really pro-poor?

2015-03-02 16:45

In his budget speech this week, Finance Minister Nhlanhla Nene emphasised the importance of keeping SA fiscal policy progressive – that is, geared at redistributing resources from the rich to the poor. His tax proposals support this principle by raising taxes for the rich. But in truth, it is far more complicated than that, writes Dewald van Rensburg


The centrepiece of the fiscal policy’s progressiveness is the massive social-grant system, which provides income of R120?billion to millions of poor South Africans.

This year’s increases to the grants are, however, almost guaranteed to decrease their beneficiaries’ spending power.

The grants are going up by 4.4%. Treasury says this is in line with its projections for inflation for the first half of this year.

The official inflation rate in January was exactly 4.4%.

The problem is that poor people’s inflation rate is higher than that. The overall figure gets dragged down by the rich because their consumption dominates the country’s total consumption.

In January, the inflation rate for everyone qualifying for a grant was actually between 5% and 5.6%.

To qualify for the childcare grant, your annual income must fall below R35?750. That means a salary of less than R3?000 per month.

For the old age grant, the threshold is R61?600.

These numbers correspond almost exactly to the second and third “quintiles” of the population for which the government calculates separate inflation rates.

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The one percentage-point hike in income taxes actually amounts to very mild tax relief for everyone earning less than R450?000, according to Treasury calculations.

That’s because Treasury is simultaneously giving everyone tax relief and a tax hike – with the difference between the two hypothetically only resulting in an increase for the rich.

That shifts the income tax burden even higher up the income hierarchy, where the top 1.1% of people already pay 22.2% of the income taxes. This will become 22.7%.

On the other hand, increases in fuel and electricity levies, as well as the traditional hike of so-called sin taxes, are all exactly the opposite: regressive.

Like value-added tax, they disproportionately affect the poor, especially those who do not pay income tax at all because they fall below the taxable threshold of R70?000 a year (see table).

While car owners have a more direct stake in the price of petrol and diesel, the fact is that the bottom fifth of consumers are extremely exposed. They use 7.09% of their income on road transport, largely minibus taxis, whose owners are not afraid to pass on fuel costs. The top fifth spends 7.11% on fuel and public road transport.


The one tax proposal that really does stick it to the rich and benefit the rest is the new transfer-duty schedule.

These are duties payable when properties are sold.

At the bottom end, all properties worth less than R750?000 are now exempt. That threshold used to be R600?000.

At the other extreme, a whole new category was introduced for expensive properties. The maximum duty was R37?000 plus 8% of the value of the property above R1.5?million.

Now a property worth more than R2.25?million gets hit with a duty of R85?000, plus 11% of the value above R2.25?million.

If you are planning to sell a mansion for R10?million, that means the duty involved has gone up from R717?000 to R937?500.

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