The Minister of Finance earlier today delivered his Budget Speech for 2017/18 amidst depressed GDP prospects, and negative balance of payment figures. GDP is estimated to be 0.5% in 2016, increasing to 1.3%, 2%, and 2.2% in 2017, 2018, and 2019, respectively. Consumer Price Index (CPI) inflation is estimated to be 6.4% in 2016 and 2017, and decrease to 5.7% and 5.6% in 2018 and 2019, respectively. The balance of payments current account as a percentage of GDP is expected to slightly decrease from 2016 at -4%, 2017 at -3.9%, 2018 at -3.7%, and 3.8% in 2019.
The Minister announced an expected budget deficit of 3.4% of GDP for 2016/17, which will decrease to 2.6% in 2019/20. Debt stock is expected to stabilise at 48.2% of GDP in 2020/21. We will see a lowering of the main budget non-interest expenditure ceiling of R26 billion over the next two years, which is welcomed.
The Department of Finance will raise an additional R28 billion in tax revenue in 2017 /18. The Minister of Finance will announce measures to increase revenue by R15 billion in 2018/19 in the 2018 Budget. The Minister has reprioritised R30 billion through the budget process to protect core social expenditure.
Non-interest spending will on average grow at 1.9% in real terms over the next three years. Debt-service costs and post-school education are the fastest-growing categories, followed by health and social protection.
Over the next three years, government will spend R490.4 billion on social grants, R105.9 billion on transfers to universities, and the National Student Financial Aid Scheme will spend R54.3 billion. An amount of R751.9 billion will be spent on basic education, which includes R48.3 billion in direct subsidies to schools, R42.9 billion in infrastructure, and R12.7 billion for learner and teacher support materials. An amount of R114.8 billion is budgeted to subsidise public housing, whilst water resources and bulk infrastructure is expected to spend R94.4 billion. R189 billion is budgeted for transfers of the local government equitable share to provide basic services to poor households, R142.6 billion to support affordable public transport and R606 billion on health, with R59.5 billion on the HIV/AIDS conditional grant.
The 2017/18 tax year sees the introduction of a new top marginal income tax bracket for individuals and partial relief for bracket creep which will raise an additional R16.5 billion. The higher 20% dividend withholding tax rate will raise an additional R6.8 billion, whilst increases in fuel taxes and alcohol and tobacco excise duties will combined raise additional revenue of R5.1 billion. Government still intends implementing the sugar tax when the legislation is approved. A revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017. The biggest tax contributors are Personal Income Tax (at R482.1 billion or 38% of the tax take); VAT (at R312.8 billion or 25% of the tax take); Corporate Income Tax (at R4218.7 billion or 17% of the tax take); Customs and Excise (at R96.1 billion or 8% of the tax take); fuel levies (at R70.9 billion or 6% of the tax take) and other sources (at R84.9 billion or 7% of the tax take).
In light of the economic factors, the budget could probably have been worse. It is welcomed that the budget deficit is expected to decrease from 3.4% (2016/17) to 2.6% (2019/20), GDP is expected to increase, and CPI expected to remain relatively low. Unfortunately this must be assessed against the increase in the top marginal personal income tax rate from 41% to 45%, which is pushing the Laffer curve safety point considerably.
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