The national budget was presented against a backdrop of disappointing global growth and a challenging South African economic environment with GDP growth for 2016 being revised downwards to 0.9%. Added to this was a need to try to avoid further credit rating downgrades.
Tax increases included:
- A further increase in the fuel levy.
- An increase in Capital Gains Tax (CGT).
- A rise in transfer duties for properties worth more than R10 million.
- The usual rise in the ‘sin’ taxes (alcohol and tobacco).
- A new tyre levy and a tax on sugar.
- There were no adjustments to the VAT rate, corporate tax and the top marginal tax rate for individuals.
On the expenditure side of the budget:
- Main areas of growth in Government spending are education, social grants, health, housing and community development.
- Support will also be given to drought stricken farmers.
In a rising inflationary and interest rate environment and the threat of a further credit rating downgrade, the size of government debt at around 50% of GDP remains a concern. It is important that there is the political will not to breach the government’s expenditure ceiling, that the public sector wage increases are contained and that stronger economic growth is achieved through co-operation between government and the business sector and the encouragement of private sector business.
For an a more detailed analysis of the budget, click here to see a 8 minute video by Kevin Lings, Chief Economist at Stanlib.