Lebogang Seale
Political Bureau
FINANCE Minister Nhlanhla Nene’s maiden Budget was a relatively good balancing act that tackled sluggish economic growth, stubborn unemployment and the wasteful expenditure that often arises from corruption.
But the inevitable hike in personal income tax is set to hit cash-strapped South Africans hard as they are still reeling from an increase in inflation.
This was the general view expressed by economic analysts yesterday as they reflected on Nene’s 2015/16 Budget speech.
In highlighting the inevitability of increased personal tax, Nene said: “It is clear we can no longer postpone consideration of revenue measures.”
Jacqueline Arendse, a professor in taxation at Rhodes University, said while the tax hike was predictable because of the economic constraints, she did not expect an almost wholesale, blanket increase across the income groups.
“I think it (personal tax increase) wasn’t unexpected, but perhaps what was unexpected was that it would affect almost everybody.
“So, it’s going to affect the majority of taxpayers, and that’s going to be painful because the cost of living keeps increasing,” Arendse said.
“I suppose the counter-argument is that the fuel price has gone down. But remember, we are expecting an increase in the fuel price of about 60c a litre in the next week or so.
“Tough times lie ahead and we are all feeling the pain. As much as people have had relief from the drop in the fuel price, I think we haven’t had the full relief because it hasn’t translated into a decrease in food prices. So, we don’t see a direct correspondence.”
Arendse noted, though, that Nene’s Budget was a relatively good juggling act because of the adverse economic climate.
“He (Nene) had to tread carefully and, inevitably, there was a need for additional tax revenue.
“He balanced it very well, given some of the economic constraints. He tried to minimise the damage to South Africans and alleviate some additional taxes with the reduction of UIF.”
Arendse’s statements were backed by Annabel Bishop, an economist at Investec Bank.
She said while it was “somewhat better than expected” – the Budget is likely to prompt positive comments from the rating agencies – the hike in personal tax has spelled bad news for consumers.
“Personal income taxes were raised, which is not good news in a slow growth year where the consumer is financially vulnerable,” Bishop said.
Kenneth Creamer, an economist at Wits University’s School of Economic Business Sciences, had mixed feelings.
He said Nene appears to have struck the right balance in trying to control government spending, reduce wasteful and fruitless corruption and moderately increase taxation “for those who can afford it best”.
“These interventions were necessary to help stabilise South Africa’s finances and avoid the dangers of deepening debt in the face of a projected economic growth of only 2 percent this year.”
Creamer said while Nene’s Budget appeared to have a realistic grasp of the importance of solving South Africa’s power generation crisis, the minister was thin in detail on the government’s plans to reinvigorate Eskom.
The minister, he added, could also have provided more detail on revitalising the broader power generation sector and rapidly facilitating private sector investment in the energy sector.