In the run-up to the 2012 Budget many wishes and warnings were addressed to Minister Gordhan.
Let’s see who got what they asked for (the “haves”) and who were denied (the “have-nots”):
Requested: The SA Institute of Professional Accounts asked that individual taxpayers be spared. According to SAIPA they “…had been contributing an ever-growing share of South Africa’s revenues in the past five years.”
Verdict: Modest tax relief of R9.5bn was proposed. This was “… to ensure that the direct personal income tax burden on individuals remained reasonable.” According to the Minister personal income tax was the basis for an equitable and progressive tax system. The top marginal tax rate for individuals remains at 40%. However, from 1 March 2012, the CGT inclusion rate for individuals and special trusts increases to 33.3% (from 25%) and for companies and other trusts to 66.6% (from 50%). So with the one hand the Minister gave and simultaneously took substantially with the other.
Requested: Business Unity SA (“BUSA”) worried that SA’s “fiscal wiggle room was shrinking.” It wanted the Minister to focus on “structural factors that could strengthen economic performance over the longer term.” The focus had to be the promotion of growth and job creation.
Verdict: “To drive back unemployment” got a mention right at the outset of the Minister’s Budget Speech. The Minister’s focus will be on the unemployed youth and therefore special employment initiatives had to be a priority in the present circumstances. On the financial side: a Budget deficit of the 4.6% of GDP is projected for 2012/13. That will reduce to 3 % of GDP in 2014/15. Public debt will stabilise at 38% of GDP. Total spending will be R1.1 trillion next year, i.e. some 32% of GDP.
Requested: BUSA and many others warned that “welfare payments could not continue out of proportion with taxes.” SA currently has 15m recipients of social grants and this has grown 300% during the last decade.
Verdict: Expenditure on social grants will grow from R105bn in 2012/13 to R122bn in 2014/15. In his speech the Minister mentioned that 16m South African actually received social grants and that the increases given in the Budget would be reassessed if inflation continued to rise.
Requested: Everyone wondered where money for the National Health Insurance (“NHI”) would come from? There were warnings that SA could not afford the NHI.
Verdict: NHI will now be phased in over 14 years from 2012/13. It will require new funding sources. Options include an increase in VAT, a payroll tax on employers, a surcharge on income tax on individuals or a combination of these. The mention of a VAT increase is interesting seeing that VAT has always been viewed a politically-sensitive tax.
Requested: Economist Mike Shussler warned that “… while SARS has become more effective, a high effective tax rate constrains companies from investing in a meaningful way.” Government should learn to help companies otherwise SA would lose investment.
Verdict: The Dividend Withholding Tax takes effect on 1 April 2012 and will be at 15% (5% higher than the STC it replaces). A whole section in the Speech was devoted to “Support to business sector growth”. This included, amongst others, a simplified tax regime for small business, a draft policy framework and legislation that has been published for special economic zones and a venture capital incentive for junior mining companies.
Requested: Numerous commentators asked that so-called “stealth taxes” should be curbed. This covered moans about the fuel levy, toll fees, administered prices, increases in electricity tariffs, a possible carbon tax, etc.
Verdict: No relief in respect of sin taxes was to be expected. Excise duties on tobacco increases by between 5 and 8.2%. That on alcoholic beverages will increase between 6 – 20%. Following public consultation, government has revised its concept design for a carbon tax and a draft policy paper will be published for comment in 2012. The electricity levy will be increased by 1c/KWh to 3.5c/KWh. The general fuel levy increases by 20c/l and the Road Accident Fund levy by 8c/l (from 4 April 2012).
Requested: Recently there was a lot of talk regarding “High Net Worth Individuals” (“HNWI”). Some mentioned a Warren Buffet-type “wealth tax.”
Verdict: A specific wealth tax on the ultra-rich did not happen. However, according to the Minister there is room to improve service to this segment. But, they will be a “focus area for SARS in the coming year.” Certain toys of the HNWI’s will also become more expensive. Styled as a “Tax on luxury goods”, there will be, from 1 October 2012, an ad valorem tax on certain aeroplanes and helicopters (at 7%) as well as on certain motorboats and sailboats (at 10%).
Requested: Everybody in SA, without exception, asked on their wish-lists for taxpayers’ monies to be spent wisely and in the right places. The wide-spread wasteful expenditure had to be addressed and those responsible taken to task. Otherwise “…government would lose its moral right to tax.”
Verdict: The Budget proposals state: “Government is taking steps to improve the efficiency of public expenditure and to root out corruption.” In his speech the Minister said that “we have to do more with less.” The Minister emphasised that fraud and corruption would be combated through changes to procurement policies and practices and tough enforcement of the law. It’s interesting that a whole section of the Budget Speech gave details as to how the wasteful expenditure would be stamped out going forward.
Johan van der Walt, Tax Director, Cliffe Dekker Hofmeyr
See also: 2012 Budget Speech