Budget speech 2016 – junk on hold but outlook still critical

Minister of Finance, Pravin Gordhan gave his budget speech last week, and though South Africans are tentatively relieved, analysts have warned that the speech lacked significant policy announcements which would reignite South Africa’s economy and calm investor woes.

The greatest concern in the weeks lying ahead seems to be a possible disconnect between the Treasury and the ruling parties. A ratings downgrade, though on halt for the moment, could still be applied should government at any time fail to comply or act on the ministry’s budget and policy changes.

Rating agencies like Standard & Poor are waiting to see if the presidency will back Gordhan in his policies.

Analyst concerns in the wake of 2016 Budget speech

Analysts are however concerned about the lack of forward-thinking and innovation presented at the budget speech this week. The concern is that not enough is being done to spur GDP growth and address stagnant markets. In addition to this, there was a noteworthy lack of fundamental economic reforms needed to better boost and improve growth levels.

In contrast to rating agencies, analysts see the president’s backing as a sign of fundamental flaws in the 2016 budget and policies themselves, as they believe corrective policies will have caused waves in the ANC camp.

However, some believe that rocking the boat any further is not a wise idea at present, and Gordhan’s rather conservative changes may have been the only measures within his bounds to address South Africa’s greatest problems.

Some further concerns were raised by the Hawks investigation into former senior SARS officials in relation to a rogue unit. These include Ivan Pillay and Johan van Loggerenberg while Pravin Gordhan has also been pulled into the fracas as Hawks require a cross-examination with the Minister of Finance. The supposedly imminent prosecution of these officials was ordered by Deputy Director of Public Prosecutions, Advocate Nomgcobo Jiba and further sanctioned by NPA head, Shaun Abrahams.

In addition to the abovementioned concerns, there are further worries following the rumours that Barclays may be pulling out of Africa and selling its South African assets.

Main points of the budget speech

Although it is still unclear where the economy is headed and whether or not it will stabilise, one can at least consider the budget in a nutshell.

We’ll run over the main points of the budget speech for you. Below are the crucial announcements and changes we’ll see in 2016 and projected for the next few years.

Budget framework

• Budget deficit: 2015/16 – 3.9%, 2016/2017 – 3.2%, 2018/19 – 2.4%
• Debt stock: % of GDP – to stabilise at 46.2% in 2017/18
• Reduced governmental expenditure ceiling: 2017/18 – R10bn reduction, 2018/19 – R15bn reduction
• Tax revenue: Additional revenue income projected 2016/17 – R18.1bn
• Reprioritised government expenditure: reallocation of R31.8bn for higher education, the New Development Bank and other priorities.

2016-18 budget:

• Social grant budget – R457.5bn
• Universities – R93.1bn
• National Student Financial Aid Scheme – R41.2bn
• Basic education – R707.4bn
• Public housing – R108.3bn
• Water resources & bulk infrastructure – R102bn
• Local government (free basic services) – R171.3bn
• National non-toll road network – R30.3bn
• Metrorail and Shosholoza Meyl passenger subsidies – R13.5bn
• Manufacturing development incentives – R10.2bn
• National health insurance pilots – R4.5bn

Macro-economic projection:

• GDP growth: 2016 – 0.9%, 2017 – 1.7%, 2018 – 2.4%
• Export growth: 2016 – 3.0%, 2017 – 4.6%
• Imports growth: 2016 – 3.7%, 2017 – 4.5%
• Inflation: 2016 – 6.8% (acceleration from 2015), 2017 – 6.3%, 2018 – 5.9%
• Capital formation: 2016 – 0.3% (growth of GDP), 2017 – 1.4%, 2018 – 2.7%
• Household consumption growth: 2016 – 0.7%, 2017 – 1.7%, 2018 – 2.2%
• Balance of payments in deficit: 2016 – -4.0%, 2017 – -3.9%

Tax proposals:

• Individual fiscal drag relief – R5.5bn
• Additional tax raised
  • excise duties, fuel levy, middle income & environmental taxes – R9.5bn
  • capital gains tax and transfer duty adjustments – R2bn
• Transfer duty on property sales > R10m raised to 13%
• Tyre levy
• Sugar tax
• Fuel levy increase
• Medical scheme tax credit increase to remain on par with current level of relief
• Plastic bag levy increase
• Government revenue income apportionment:
  • Personal income tax – 37.5%
  • Company tax – 16.9%
  • VAT – 25.6%
  • Fuel levies – 5.5%
• Sin tax hikes:
  • Beer – 11c/340ml
  • Fortified wine – 27c/750ml
  • Ciders and alcoholic fruit beverages – 11c/340ml
  • Unfortified wine – 18c/750ml
  • Sparkling wine – 59c/750ml
  • Spirits – 394c/750ml
  • Cigarettes 82c/20
  • Cigarette tobacco 94/50g
  • Pipe tobacco – 27c/25g
  • Cigars – 432/23g

Social grant increases

• State old age grant: R1 415 to R1 505 per month
• Sate old age grant (75+): R1 435 to R1 525 per month
• War veteran grant: R1 435 to R1 525 per month
• Disability grant: R1 415 to R1 505 per month
• Foster care grant: R860 – R890 per month
• Care dependency grant: R1 415 – R1 505 per month
• Child support grant – R330 – R350

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