Budget 2016: Gordhan taxes wealthy and cuts jobs to prevent credit-rating downgrade
In his budget speech to lawmakers in Cape Town on February 24 Finance Minister Pravin Gordhan stuck to a pledge to bring down the budget deficit, targeting civil-servant jobs and increasing wealth taxes to stave off a credit-rating downgrade to junk.
Gordhan (66) faced a difficult balancing act in his first budget since being reinstalled to the job in December. He cushioned low-income earners from tax increases while cutting spending targets, providing support to an economy set to grow at the slowest pace since the 2009 recession without increasing the debt burden.
The budget “is focused on fiscal consolidation,” Gordhan said. “We cannot spend money we do not have. We cannot borrow beyond our ability to repay. Until we can ignite growth and generate more revenue, we have to be tough on ourselves.” The government will miss this year’s tax-revenue target, pushing up the budget shortfall slightly to 3.9% from 3.8%. The deficit will narrow to 3.2% in the fiscal year beginning April 1, better than the 3.5% median estimate of 21 economists surveyed by Bloomberg.
South Africa is at risk of losing its investment-grade credit-rating status because of slowing growth and rising debt. Standard & Poor’s has a negative outlook on the nation’s sovereign rating of BBB-, which is one level above junk.
Gordhan outlined a series of tax measures to help boost revenue, while pledging to curb the civil service by eliminating non-essential jobs. He avoided lifting the value-added tax rate, which economists at BNP Paribas Securities South Africa estimated could raise as much as R15-billion in revenue if it was increased by 1 percentage point from 14%.
Increasing taxes on property sales, fuel, alcohol and capital gains will help raise an additional 18.1-billion in revenue in 2016/17, the treasury said. Gordhan also proposed a tax on sugar-sweetened drinks from April 2017 and said there may be room to increase indirect taxes such as VAT in coming years.
For the full speech see: http://mg.co.za/article/2016-02-24-pravin-gordhans-full-2016-budget-speech
(Mail & Guardian/Johannesburg)