2017 Budget Summary
This year’s budget by the Minister of Finance, Pravin Gordhan is R100bn more than 2016 budget. This budget resonates with President Jacob Zuma’s commitment of “radical economic transformation” as expressed in his recent State Of The Nation Address. In a nutshell, the 2017 Budget is as follows:
In a nutshell, the 2017 Budget is as follows:
- Proposed expenditure totals R1.56 trillion.
- Projected revenues amount to R1.41 trillion, up 7%.
- The Budget deficit of R149bn, or 3.1% of GDP, will be borrowed.
- Government debt has risen to R2.2 trillion, 50.7% of GDP.
- Annual interest payments on debt now amounts to R169bn.
- An extra R5bn for higher education will be added to the R32bn previously announced.
- Tax receipts have risen from 27.8% of GDP three years ago to 29.4% in 2016/17. It is forecast to rise to 29.8% in the year ahead.
- Government spending has risen from 31.5% of GDP in 2013/4 to 32.8%. It is forecast to increase to 33% this year.
Tax collection shortfalls
Last year’s tax revenues were R30.4bn below what was estimated in the 2016 Budget, the largest shortfall in revenue since GFC-impacted 2009/10.
Personal income tax generated R15.2bn less than expected; VAT was R11.2bn below target; and in customs duties the shortfall was R6.5bn.
This problem was signaled in October’s Mini Budget, but has grown by more than a third from the R22.8bn shortfall that was expected then. Treasury is making a habit of making over-optimistic forecasts. In last year’s Budget it had to admit to revenues that were R11.6bn below what had been projected the previous year.
2017’s higher taxes of R28bn come from a five sources:
- R12.1bn, will accrue through “bracket creep”. Taxable income thresholds are usually adjusted to offset inflation; this year the adjustment will be minimal.
- R4.4bn will be raised through an increase to 45% in the marginal tax rate on income above R1.5 million. This will affect about 100 000 taxpayers.
- R6.8bn will be raised through the hike from 15% to 20% in the dividend withholding tax, rationalized because the higher marginal tax rate would otherwise offer an arbitrage opportunity.
- R3.2bn will be generated by a net 39c per litre increase in the fuel taxes. Since 2014, tax on petrol has risen from 27% to 36% of the pump price; and for diesel from 28% to 45%.
- R1.9bn comes from increased excise duties for alcohol and tobacco of between 6% and 10%.
Limited tax relief will be provided through:
- There is a marginal increase in the threshold for taxable income (from R75 000 to R75 750) and property transfer duties (from R750 000 to R900 000).
- Allowance for tax-free savings accounts increased to R33 000.
- Medical tax credit is increased in line with inflation, but is in line for a reduction in future as part of financing the National Health Insurance.
Fresh taxes coming soon
- Negotiations continue on the Sugar Tax. It will be implemented later this year.
- The proposed carbon tax and its date of implementation will be considered further in Parliament this year.