Taking from the rich to give to the poor. This was the tightrope walked by Finance Minister Pravin Gordhan yesterday as he slapped tax hikes on the elite while dishing out extra billions of rands to fund higher education for the poor.
Also on the rise were fuel prices, coupled with the introduction of a sugar tax and added excise duties for alcohol and tobacco.
The total tax increases are needed to plug a R28-billion hole in the government’s finances and narrow the gap of its increasing debt, which is sitting at 50.7% of gross domestic product (GDP).
Gordhan said that after servicing some of the country’s debt, it would stabilise at 48% of GDP over the next three years.
While South Africa’s economic situation remained dire, it had stabilised under stern Treasury management, he said.
Gordhan said economic growth in South Africa was uneven.
The bottom 20% of the population had benefited from social security grants and better access to services than before, while the top 20% had benefited from the rising demand for skills and from pay increases. But the middle 60% had been left behind.
The wealthiest South Africans – with earnings above R1.5-million a year – will find themselves in a new tax bracket, with 45% of their income going to the state to help with service delivery and alleviation of the plight of the poor.
“The relationships between labour and capital, rich and poor, black and white, men and women, town and township, urban and rural, still reflect the entrenched legacy of colonialism and apartheid,” Gordhan said.
He said wealth was produced and allocated along lines that remained fundamentally unjust.
“The ownership of assets and the distribution of income is captured by a minority of the population – [which] is morally wrong and economically unsustainable.”
He revealed that the SA Revenue Service (SARS) had, for the first time ever, failed to reach its tax revenue target, falling short of the required amount by R30-billion.
Rather pointedly, Gordhan failed to thank or even mention SARS commissioner Tom Moyane – with whom he has had a long and bitter feud – at all in his speech.
Meanwhile, the affordable housing market is set to get a boost as Gordhan lifted the threshold for property transfer duties from properties worth R750 000 and less to R900 000.
He also announced an extra R5-billion in funding for higher education, in addition to the R32-billion announced in last year’s budget, to be made available by 2019.
The budget will see a R31-billion allocation in university subsidies, R21-billion for skills development levy institutions, R15.3-billion for the NSFAS and R7.4-billion for technical and vocational training.
“Given the magnitude of student funding requirements, it is imperative we develop a clear roadmap towards a better higher education and training system,” he said.
The tax on sugary drinks would be implemented later this year, once details were finalised and the legislation passed, he said. The budget allocates a 30-cent- a-litre increase in the fuel levy and a 9c/l increase in the Road Accident Fund (RAF) levy, effective on April 5.
No RAF levy was imposed in last year’s budget.
The two levies, coupled with customs and excise levies on petrol, diesel and biodiesel, funded general government expenditure, supported environmental goals and financed the RAF, the Treasury said.
It is also mulling the potential of removing the zero VAT rating on fuel, but said this would be subject to consultation leading up to the 2018 budget.
“To mitigate the effect on transport costs, the government will consider combining this with either a freeze or a decrease in the fuel levy,” a budget review document states.
NMMU Business and Economic Sciences executive dean Dr Ismail Lagardien said it was evident that “the cake” was shrinking quite rapidly.
“The state is getting in less revenue and the economy is not expanding,” he said.
This meant increased demands for a “slice of the cake” might not be met, unless there was significant expansion of the economy and shoring up of SARS. “Everyone wants more money,” he said. Gordhan had said revenue collection faced quite significant pressure.
“This sounds like a euphemism for SARS losing its standing as one of the world’s best revenue collecting services,” Lagardien said.
“The minister put a nice gloss on the state of revenue collection, but there has been growing evidence that SARS may be following the route of other state departments.”
Nelson Mandela Bay Business Chamber chief executive Kevin Hustler said the 1.3% growth rate expected for this year was much too low to turn around the economy and unemployment rate in the country, particularly in the Eastern Cape.
“We are pleased that VAT was kept at the standard rate of 14%,” he said.
“Of concern, however, is the fuel tax increase of 39c/l and how this will affect ordinary businesses and the embattled consumer.”
Nafcoc Bay secretary Mandla Msizi said Gordhan’s focus on state-owned enterprises in his speech demonstrated that the government was serious about radical economic transformation.
“We are also pleased about the spends he announced for economic development and agriculture,” Msizi said.
“Increased expenditure in these sectors will assist our members and drive employment.”
However, Nafcoc would like to see more clear implementation of the government’s plans and increased partnership between the public and private sectors, he said.