Yesterday (22 February 2017), Finance Minister Pravin Gordhan delivered the budget speech for the 2017/2018 year. In setting the context of the speech, Minister Gordhan focused on increasing global economic growth, South Africa’s lagging economic growth, uncertainty in the general economic environment, and the government’s intentions to create a “more inclusive, shared economy.”

Below is an outline of some of the key points pertaining to this year’s budget.

Big picture: expenditure and debt

The proposed government expenditure for 2017/2018 is R1.56 trillion. Of this, R149 billion (3.1% of GDP) will need to be borrowed.

At present, the South African government has R2.2 trillion in debt (50.7% of GDP), and interest payments on this debt amount to R169 billion per year. As Minister Gordhan pointed out in his speech, rising debt levels mean that more of each year’s budget will go to servicing debt, rather than service delivery and other government functions.

The budget is broken down between the levels of government as follows:

  • National:       47.5%
  • Provincial:     43.4%
  • Local:            9.1%

Tax

As with every budget speech, tax is one of the key points of interest.

Minister Gordhan stated that the tax revenue for 2016/2017 would be R1.144 trillion; in 2017/2018, an additional R28 billion will be raised by the new tax proposals.

As for the content of these proposals, the main two developments are:

  • A new personal income tax bracket for those with a taxable income over R1.5 million per year; the marginal tax rate for this bracket will be 45% (the previous marginal tax rate for these individuals was 41%);
  • An increase in dividend withholding tax from 15% to 20%.

In addition, the petrol price will be increased by additions to levies: the general fuel levy will increase by 30c/l, while the Road Accident Fund levy will increase by 9c/l.

Excise duties on alcohol and tobacco will increase by 6-10%.

In addition, Minister Gordhan noted that the proposed “sugar tax” was still in the consultation phase, but would be implemented later this year. Furthermore, he stated that the proposed “carbon tax” would be further discussed in Parliament during the year.

One of the main points with regards to tax was that government would begin to focus on and reduce tax avoidance – in particular, that by multinational corporations.

Other budget sections

For the other main sections of the budget, some key points are noted below:

  • Economic infrastructure and investment: the focus was on the importance and reform of State-owned Companies (SOCs), including the amounts that will be allocated to various SOCs.
  • Health services: Minister Gordhan spoke about the pilot phase of the NHI rollout, and stated that the NHI Fund would be implemented next.
  • Education: more attention will be given to early childhood development and the Foundation Phase of education. The budget for basic education will be over R240 billion, which amounts to 17.5% of the budget.
  • Financial assistance to students in higher education and colleges: the Minister said that economic growth would facilitate greater funding for tertiary education. He also highlighted than in 2016/2017, an additional R32 billion was allocated to higher education, while an additional R5 billion has been allocated this year.
  • Social assistance: the main development is that social grants have been increased in line with inflation (CPI).
  • Public procurement: the government will spend R500 billion per year for the next 3 years on public procurement. Savings on various government procurement contracts were outlined.
  • Financial sector transformation and regulation: past regulatory reforms aimed at the financial sector were outlined, and some attention was given to the recent Competition Commission investigation.

More Rational Standard commentary to follow.

Nicolai is a Copy Editor and Senior Staff Writer at the Rational Standard. He is a fourth-year actuarial science student at the University of Cape Town. He enjoys thinking and writing about economics, Critical Theory, culture, and current affairs.