Wednesday, April 27, 2016


This article first appeared in the Business Times section of The Sunday Times on 28 February 2016 

THE first time I saw the budget speech on Wednesday morning, I was convinced pages were missing. I did my usual quick squiz of the document and looked for the key big-ticket items I expected.

I found nothing, other than that fiscal discipline would come from curtailing the public sector wage bill. So I read the speech again, much slower. Still nothing. I picked up the Budget Review, all 235 pages of it, and paged through it carefully. That is when I realised that none of what I thought was going to happen, actually happened.

My biggest surprise was the decision to keep the marginal tax rate constant at 41%. It is no secret that the government needs to generate more revenue. Last year, we missed our projected tax revenue by R4-billion, which widened the budget deficit further than expected.

Due to slow economic growth, the 2016-17 fiscal year is likely to be a difficult one for individuals and companies. So collecting additional taxes from individuals who are losing jobs as the commodities slump persists and companies that are reporting lower profits is going to be difficult.

There is no doubt the fiscus need much more revenue than what the minister asked for this week.

I would suggest that, ironically, most South Africans were ready to play their part in ensuring our country navigates these difficult times.

South Africans, especially the high-income earners, were ready to come to the party, and an increase in the marginal tax rate would have been appropriate. Some may wonder why I would advocate paying more tax.

It is not because I enjoy paying tax. However, I am acutely aware of the challenges facing my country, and I would not hesitate to play my part, even if it means earning less.

I think many other South Africans feel the same way.

In the Budget Review I discovered an interesting table outlining the amounts of tax expected to be paid by individuals at different levels of taxable income for the 2016-17 year.

South Africa has 13.7 million individuals registered for income tax. Some 6.6 million, or 48% of them, don’t pay any tax as they earn less than R70 000 a year. That leaves 7.1 million taxpayers. Of these, 2.6 million earn less than R150 000.

If you earn anything more than R701 301 a year, you are in the highest tax bracket and are paying 41% tax on your earnings.

According to the Treasury, there are only 429 173 people who earn more than R750 000. That is 6% of the total population of taxpayers. This group pays 47% of the tax bill.

In this group of 429 173 there is a special group. They are the 94 578 who earn more than R1.5-million a year.

This crowd couldn’t fill FNB Stadium and represent a mere 1.3% of the taxpaying population, yet pay a whopping 23.5% of taxes collected.

Finance Minister Pravin Gordhan argues that an increase in VAT is inappropriate in these tough times because of the tax’s regressive nature.

Everyone, including the poor, would have to pay more for all “VATable supplies”, although one could soften the blow by extending the list of zero-rated items.

But why then increase the general fuel levy by 30c, or 11.6%? Why would it not be a regressive tax? The fuel price not only affects those who own cars, or use public transport. It affects the prices of all goods delivered and services rendered.

So why hike the fuel levy and leave the rich largely unscathed?

My basic mathematics tells me that the fiscus could’ve raised the R9.5-billion it plans to collect from the fuel levy by increasing the marginal tax rate by a mere 0.5%.

This would affect only 429 173 people, and it’s the very rich 94 578 FNB Stadium crowd that would pay most of this increase in any case.

The increase in transfer duty for properties valued at more than R10-million and the increase in capital gains tax inclusion rates are a slap on the wrist. By the Treasury’s own admission, they would collectively raise only R2-billion for the fiscus.

In his budget speech, Gordhan repeatedly highlighted the need for all South Africans to work together to navigate these challenging times. Even rich South Africans were ready to come to the party, and the minister didn’t take the opportunity.

When I consider the reality of an economy that will see only 0.9% growth this year, the words of former finance minister Nhlanhla Nene’s keep ringing in my ears.

“If we do not achieve growth, revenue will not increase. If revenue does not increase, expenditure cannot be expanded.”

An increase in the marginal tax rate was appropriate, Minister Gordhan.

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