Finance Minister Pravin Gordhan and his Treasury team have been praised for delivering a budget that balances calls for transformation with SA’s precarious fiscal reality.
“Gordhan understands that fiscal rectitude is necessary for the growth and transformation of SA’s economy‚” said Wits University economist Dr Kenneth Creamer.
Nedbank economists said: “Treasury’s vision of radical transformation is one of inclusive‚ win-win growth‚” quoting Gordhan as saying: “This is not a transformation to be achieved through conquest‚ conflict or extortion‚ as in our past.”
Gordhan cut government spending by R26bn over two years but increased spending on social projects — notably on higher education‚ in response to calls for better funding for students and even for free higher education.
Taxes
At the same time‚ a package of tax increases to bring in an extra R28bn was introduced‚ with R4.4bn of that coming from higher income taxes on SA’s top 100‚000 earners.
“It is widely understood that there are limits to how far taxes can be raised‚ but in current circumstances it is preferable that Gordhan has chosen to raise taxes at the top end‚ rather than to increase borrowing‚” Creamer said.
“Increased borrowing would raise the very real risk of SA falling into a debt-trap‚ which would severely harm the prospects of our children and grandchildren.”
Lew Geffen‚ chairman of property firm Lew Geffen Sotheby’s‚ was less impressed with the tax hikes.
“Gordhan uttered the word ‘transformation’ more than 50 times in his 29-page speech‚” Geffen said.
“He is not wrong that transformation is needed in SA‚ but not at the expense of the taxpayers on whose backs the economy is built.”
The Nedbank economists said: “Pre-budget speculation focused mainly on what taxes would be raised to plug the expected revenue gap. With an increase in VAT a political impossibility‚ a hike in the top marginal tax rate‚ below-inflation moves in thresholds and a large increase in the fuel levy were expected to be the main revenue measures‚ expectations that were largely fulfilled.”
Ernest Mazansky‚ director of Werksmans Tax Practice‚ took issue with Treasury’s views on how share buybacks are taxed.
“One of the announcements was that the tax rules related to share buybacks — widely used to avoid capital gain tax because the proceeds are treated as exempt dividends — would be changed‚” Mazansky said.
“While this announcement was not unexpected‚ especially after the heads-up given in last year’s budget speech‚ what is somewhat irksome is the tone used by Treasury in the announcement.
“They refer to it as ‘abuse’ and as a ‘disguised’ sale of shares. But the fact is that‚ as far back as 2008 when the dividends tax legislation was first enacted‚ Treasury was made fully aware that share buybacks could be used to avoid capital gains tax by keeping the proceeds within the dividends regime‚ where they had historically been under secondary tax on companies‚ instead of bringing them within the capital gain tax regime.
“And Treasury took a deliberate decision to retain the status quo. They even caused some anti-avoidance rules to be included which re-categorised a dividend as proceeds for capital gains tax purposes‚ but the rules were so narrow that they barely applied to any of the transactions.
“So who was really to blame if taxpayers took the gap?”
Sage tax expert and director of legislation Rob Cooper warned that the increase in withholding tax on dividends “could affect pensioners who depend on income from dividends as well as discourage savers”.
Rose-tinted spectacles
Geffen said anyone still viewing the country’s medium-term economic outlook through rose-tinted spectacles had them rudely ripped off on Wednesday.
“There are unquestionably harsh times ahead‚” he said.
He thought more help for business was needed: “With an unemployment rate of more than 26% in the last quarter of 2016‚ businesses big and small need all the help they can get from the government right now‚ and in this budget they were largely ignored. That’s bad business for the economy‚ for consumers and for homeowners.”
He was not very impressed by the changes to the transfer duty threshold‚ though Gerhard Kotze‚ MD of the RealNet estate agency group‚ hailed that.
“From our point of view‚ there will be an immediate benefit from the increase in the transfer duty threshold to R900‚000‚” Kotze said.
“This will be a huge relief not only to first-time buyers but also to many existing owners who are downscaling now from large homes to smaller ones in order to reduce their expenditure on maintenance‚ rates and utilities such as water and electricity.”
Downsides in the budget for Kotze were the “hefty increases in the fuel and road accident fund levies‚ which will increase household transport costs”.
Commitments to contain spending were hailed‚ though there was some doubt about implementation.
“While the minister placed great emphasis on more reform of state-owned enterprises (SOEs) and new measures to monitor public procurement‚ the recently announced Preferential Procurement Regulations (2017) have raised serious questions about the possibility of either containing costs or maintaining the quantity and quality of spending and seemingly fly in the face of other commitments made by Treasury‚” Nedbank said.
“Gordhan’s budget is a good one‚” Creamer said. “It strikes the right balance — asking the rich to contribute a little more‚ while promising that government will re-double its commitment to using public resources more effectively to improve the lives of the poor and to transform South African into a more equitable society.”
TMG Digital
BUDGET 2017: Gordhan praised for budget that balances calls for transformation with precarious fiscal reality
Finance Minister Pravin Gordhan and his Treasury team have been praised for delivering a budget that balances calls for transformation with SA’s precarious fiscal reality.
“Gordhan understands that fiscal rectitude is necessary for the growth and transformation of SA’s economy‚” said Wits University economist Dr Kenneth Creamer.
Nedbank economists said: “Treasury’s vision of radical transformation is one of inclusive‚ win-win growth‚” quoting Gordhan as saying: “This is not a transformation to be achieved through conquest‚ conflict or extortion‚ as in our past.”
Gordhan cut government spending by R26bn over two years but increased spending on social projects — notably on higher education‚ in response to calls for better funding for students and even for free higher education.
Taxes
At the same time‚ a package of tax increases to bring in an extra R28bn was introduced‚ with R4.4bn of that coming from higher income taxes on SA’s top 100‚000 earners.
“It is widely understood that there are limits to how far taxes can be raised‚ but in current circumstances it is preferable that Gordhan has chosen to raise taxes at the top end‚ rather than to increase borrowing‚” Creamer said.
“Increased borrowing would raise the very real risk of SA falling into a debt-trap‚ which would severely harm the prospects of our children and grandchildren.”
Lew Geffen‚ chairman of property firm Lew Geffen Sotheby’s‚ was less impressed with the tax hikes.
“Gordhan uttered the word ‘transformation’ more than 50 times in his 29-page speech‚” Geffen said.
“He is not wrong that transformation is needed in SA‚ but not at the expense of the taxpayers on whose backs the economy is built.”
The Nedbank economists said: “Pre-budget speculation focused mainly on what taxes would be raised to plug the expected revenue gap. With an increase in VAT a political impossibility‚ a hike in the top marginal tax rate‚ below-inflation moves in thresholds and a large increase in the fuel levy were expected to be the main revenue measures‚ expectations that were largely fulfilled.”
Ernest Mazansky‚ director of Werksmans Tax Practice‚ took issue with Treasury’s views on how share buybacks are taxed.
“One of the announcements was that the tax rules related to share buybacks — widely used to avoid capital gain tax because the proceeds are treated as exempt dividends — would be changed‚” Mazansky said.
“While this announcement was not unexpected‚ especially after the heads-up given in last year’s budget speech‚ what is somewhat irksome is the tone used by Treasury in the announcement.
“They refer to it as ‘abuse’ and as a ‘disguised’ sale of shares. But the fact is that‚ as far back as 2008 when the dividends tax legislation was first enacted‚ Treasury was made fully aware that share buybacks could be used to avoid capital gains tax by keeping the proceeds within the dividends regime‚ where they had historically been under secondary tax on companies‚ instead of bringing them within the capital gain tax regime.
“And Treasury took a deliberate decision to retain the status quo. They even caused some anti-avoidance rules to be included which re-categorised a dividend as proceeds for capital gains tax purposes‚ but the rules were so narrow that they barely applied to any of the transactions.
“So who was really to blame if taxpayers took the gap?”
Sage tax expert and director of legislation Rob Cooper warned that the increase in withholding tax on dividends “could affect pensioners who depend on income from dividends as well as discourage savers”.
Rose-tinted spectacles
Geffen said anyone still viewing the country’s medium-term economic outlook through rose-tinted spectacles had them rudely ripped off on Wednesday.
“There are unquestionably harsh times ahead‚” he said.
He thought more help for business was needed: “With an unemployment rate of more than 26% in the last quarter of 2016‚ businesses big and small need all the help they can get from the government right now‚ and in this budget they were largely ignored. That’s bad business for the economy‚ for consumers and for homeowners.”
He was not very impressed by the changes to the transfer duty threshold‚ though Gerhard Kotze‚ MD of the RealNet estate agency group‚ hailed that.
“From our point of view‚ there will be an immediate benefit from the increase in the transfer duty threshold to R900‚000‚” Kotze said.
“This will be a huge relief not only to first-time buyers but also to many existing owners who are downscaling now from large homes to smaller ones in order to reduce their expenditure on maintenance‚ rates and utilities such as water and electricity.”
Downsides in the budget for Kotze were the “hefty increases in the fuel and road accident fund levies‚ which will increase household transport costs”.
Commitments to contain spending were hailed‚ though there was some doubt about implementation.
“While the minister placed great emphasis on more reform of state-owned enterprises (SOEs) and new measures to monitor public procurement‚ the recently announced Preferential Procurement Regulations (2017) have raised serious questions about the possibility of either containing costs or maintaining the quantity and quality of spending and seemingly fly in the face of other commitments made by Treasury‚” Nedbank said.
“Gordhan’s budget is a good one‚” Creamer said. “It strikes the right balance — asking the rich to contribute a little more‚ while promising that government will re-double its commitment to using public resources more effectively to improve the lives of the poor and to transform South African into a more equitable society.”
TMG Digital
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