February 27, 2017
On Wednesday 22 February South African Finance Minister Pravin Gordhan delivered his 2017 Budget Speech in Parliament. The Minister’s budget speech occurred against a challenging political background where there is ongoing competition between Treasury and the Presidency for influence over procurement through and finance for state owned entities, preferential procurement measures to expedite black inclusion in the economy and private sector influence over economic policy decisions.
In large part the budget targeted increasing government revenue through additional taxes and tax increases, consolidating expenditure and measures to reduce the abuse state resources and of financial markets. In regards to the latter, the Minister made mention of the proposed new financial market conduct regulator and associated legislation that will need to be processed by Parliament this year, as well as a financial markets review that will be carried out by the SA Reserve Bank.
Growth promotion is mostly prioritized through increased expenditure on post-school education and infrastructure rollout through local governments. No new changes to government’s guarantees to SOE’s were announced, and there do not appear to be any major sectoral concessions in the budget. While there has been some reprioritization of spending, spending as a percentage of GDP will remain at the 33% level, declining only marginally over the next three years. His consolidated fiscal framework foresaw GDP growth of 1.3% in 2017, rising to 2 % in 2018 and 2.2% in 2019. Government debt stock is foreseen to remain just below 50% of GDP, stabilising at 48.2% of GDP in 2020/2021. A budget deficit of 3.4% of is expected for 2016/17. For 2017.18 the deficit will come in at 3.1% of GDP, narrowing to 2.6% of GDP in 2019/2020.
Debt service costs will remain the fastest growing spending category over the medium term, averaging an annual growth of 10.5% until 2020/21, with post school education and health coming in at average growth rates of 9,2% and 8,3% per annum, respectively. The government wage bill has stabilised, but spending on economic affairs and agriculture will suffer at average spending increases of 6.3% over the medium term. Average government spending will increase at around 7,3% per annum over the same period.
“Growth promotion is mostly prioritized through increased expenditure on post-school education and infrastructure rollout through local governments.”
For 2017/18, government will raise an additional R28bn in taxes. A new top marginal income tax bracket of 45% for salary earners above R1.5m per annum, combined with partial relief for bracket creep will raise an additional R16.5bn per annum. R6.8 billion will be collected through a higher dividend withholding tax. increases in fuel taxes and alcohol and tobacco excise duties will together increase revenue by R5.1 billion.
Revenue from Treasury’s proposed tax on sugar sweetened beverages has not been included in the calculation of additional revenue, despite the Minister’s statement in his budget speech that the tax would be implemented later in the year. This is probably as the tax would feasibly only be implemented from 1 April 2018, subject to Nedlac negotiations and legislative amendments still to be processed in Parliament only in the final two quarters of the year, as per established practice. A revised Carbon Tax Bill will be published for public consultation and tabling in Parliament by mid-2017. Government procurement of goods is projected to amount to around R1.5 trillion over the next three years and the intention will be to leverage that South African suppliers will enjoy preference in respect of goods with significant local content, thus supporting job creation. However, where large firms are awarded tenders of R30 million or more, 30 per cent of the contract value must go to small or black-owned enterprises, where feasible according to recently gazette procurement measures. Procurement authorities are now also empowered to set clear targets to promote black- owned and women-owned businesses, participation of youth and disabled persons and opportunities for rural enterprises and cooperatives.
Parliament will be deliberating on the minister’s budget in a plenary session on Tuesday 28 February, and in a joint hearing of the Standing and Select Committees of Finance on 1 March. Committee hearing procedures will be closely watched should former Eskom CEO Brian Molefe have been sworn in as MP, following his recent nomination to Parliament. It has been widely speculated Mr Molefe’s nomination reflected a desire from the President that expenditure on Eskom’s nuclear build programme should be expedited, but no new announcement has been made in this regard.