The South African Institute of Professional Accountants (SAIPA) has welcomed the focus on austerity in the 2016 budget tabled today in Parliament by the Minister of Finance, Pravin Gordhan. However, adds Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at SAIPA, the budget is weakened by a lack of clear targets and timelines.
No clear targets and timelines
“Certain parts of government are bloated and lacks specifics, and the Minister is surely right to make it the target for his strict measures. His repeated point that we cannot spend money we don’t have, and that we cannot borrow what we can’t repay, are welcome reality checks,” Retief says. “But I confess to feeling that the medicine could have been a little stronger, and the absence of concrete savings targets and timelines is a real missed opportunity.”
This lack of detail may be of particular concern to international investors and ratings agencies, he speculates. Similarly, while it was good to hear that SAA and SA Express might be consolidated, a firmer expression of intent with regards government funding would have been preferable.
Retief noted that the Minister chose not to raise the extra revenues needed through a VAT increase as many commentators expected. On balance, he felt that this was probably a sound political decision given the restless labour environment and the wave of student and service delivery protests currently under way. However, a VAT increase may still be in our near future.
The budget outlined several important growth initiatives, including continued spending on infrastructure, but was again short on detail as regards targets and deadlines. With the growth projection revised downwards to a barely visible 0.9%, a more concrete set of targets could have made a more convincing growth story for foreign investors and the battle-weary local business community.
Some wise moves
Retief says that the reallocation of R475 million to the Department of Small Business Development was one of the major positives of the budget, along with a recommitment to making it easier to do business generally. The Minister’s proposal to identify unspent government funds and reallocate them was also a wise move.
On the tax front, the Minister achieved a good balance by providing marginal tax relief for the lower-income earners while avoiding a direct increase for the rich. In fact, the rich will effectively pay more because there is no relief for inflation, and the increase in capital gains tax and the aggressive attack on the use of trusts for estate planning will naturally affect them the most.
In the same vein, the proposed extension of the existing Voluntary Disclosure Programme to include foreign assets, for a 6 month period starting October of this year, will give wealthy taxpayers with undisclosed foreign assets the opportunity to come clean, but will not offend compliant taxpayers as this is not an amnesty. This follows the HSBC Swiss leaked information, and the various information sharing agreements concluded with foreign jurisdiction.
“We have a disproportionate tax base, meaning only a small portion of taxpayers contribute the majority of the personal income tax revenue, and the Minister has to be careful not to alienate those taxpayers,” Retief concludes. “If I had to sum up the budget, I would say he has managed not to offend any major constituency, and that is a hard balancing act at a sensitive time for the country. Whether his strict measures and plans for reigniting economic growth and the proposed austerity measures will be enough for the international financial community, only time will tell.”