Tax relief for low-income earners

2010-02-17 12:23

CASH-STRAPPED South African taxpayers received a R6.5 billion tax

relief from Finance Minister Pravin Gordhan when he tabled a R907 billion budget

for the fiscal year 2010/11 in Parliament today.

“Income tax relief for individuals will amount to R6.5 billion,

which largely compensates for the effects of inflation. Most of the relief is

provided to taxpayers in lower-income brackets,” he said.

Gordhan, who was presenting his maiden budget, said spending would

accelerate to R2.9 trillion over the next three years.

He conceded that government coffers were under strain due to weak

tax revenues. He said the deterioration in the South African economy would lead

to the government collecting R69 billion less this year than was originally

budgeted. Consolidated revenue would total R658 billion in 2009/10, R32 billion

less than in the last fiscal year.

“We will continue to face revenue challenges in 2010/11 as tax

revenue growth is likely to lag the recovery. Given the gap between spending and

revenue, alongside efforts to curb spending growth, government requires more tax


“The preferred method of achieving higher revenues is through base

broadening, closing loopholes and improving tax compliance,” Gordhan said, who

expects the economy to grow by 2.3% this year.

National Treasury expects the budget deficit to reach 7.3%, as a

percentage of the gross domestic product (GDP) this fiscal year. Gordhan said

government would borrow from the domestic and international markets to finance

the shortfall. Overall government debt was expected to rise to 40% of the GDP in

2013 from 23% to the GDP in 2009.

Gordhan said the government would not raise taxes to cushion

households from the vagaries of the recession, which has put them under

financial stress.

In what would come as a blow to labour federation Cosatu, Gordhan

said the controversial consumer inflation target of 3% to 6% would not be

changed. Cosatu and its leftist ally, the SA Communist Party, have been

clamouring for the target to be pushed higher or to be scrapped altogether. They

argue that this policy leads to higher interest rates than is necessary and

worsens poverty and unemployment.

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