There were no real surprises in Finance Minister Nhlanhla Nene’s national budget, but that does not make the income and fuel and electricity tax hikes any less palatable for hard-pressed taxpayers. Income tax for all but the lowest income band goes up by one percentage point.
Consumers had been enjoying the recent drop in fuel prices, but the minister raised overall fuel levies by a large 80.5 cents per litre. And he sought to take the pleasure out of that glass of whiskey, with increases imposed on alcohol and tobacco. Actually “sin” is a bit of a misnomer here – these taxes are hiked each year not with the noble intention of getting people to smoke and drink less, but rather to bolster the amount of income government gets from them.
Raising the rate of VAT could have solved the minister’s deficit woes, but such a course of action remains politically unpopular as, despite a basket of basic food stuffs which is exempt, it is seen as a tax which hits the poorest hardest.
Some additional points in the budget were:
- Transfer duties on the sale of properties were amended so that there are no duties payable on property transactions below R750 000; a decrease in duties on transactions between R750 000 and R2.3 million and an increase in transfer duties on transactions above R2.3 million.
- There were no changes on the tax rate applicable to retirement lump sums.
- Trust tax rates were increased to 41.0 percent.
- Foreign capital allowance of South African residents will increase to R10 million per annum.
But who would be a finance minister at a time of anaemic economic growth which has been exacerbated by the Eskom crisis? As electricity shortages strangled the economy, Nene trimmed South Africa’s growth forecast for 2015 to 2.0 percent and predicted Consumer Inflation (CPI) will average 4.3%. This was a conservative Budget of few surprises, giving rating agencies no reason to downgrade SA to “junk” status.