Budget 2023
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Millionaires to lose out on one fancy dinner per month

Cape Town - With the delivery of his first budget speech, Finance Minister Nhlanhla Nene stood his ground admirably in dealing with some tough issues that the South African economy is facing, according to TreasuryOne.

The financial services provider wrote this insightful analysis about the budget:

The 2015 budget was the first since 1994 that required government to increase taxes to raise revenue structurally rather than rely on the usual increases in sin taxes or specific tax changes.

Personal income tax was raised by 1% for all tax brackets above R181 000 per annum (for every R1m per annum earned you will have R833 less per month, i.e., one dinner for a family of four at a restaurant).

There was however relief for the lowest income earners, because the tax-free threshold was raised up to R73 650. The fuel levy hike of 80c allows the government to bring their budget deficits in line with their forecasts.

It could be argued that these increases will be seen as growth negative, as it will lead to a decrease in consumer spending. If the taxes are applied to the right channels, infrastructure spending should pick up, and this could lead to the creation of new jobs and better growth as possible knock-on effects.

Even though the affluent private individuals will be taxed at a higher rate, they will have the benefit of diversifying their investment portfolio with their off-shore investment allowance being increased from R4m per annum to R10m per annum.

Inflation has been forecasted at 4.7% for the year; this is hugely dependent on a stable oil price and exchange rate. Should any of these two factors veer off the desired stable path we can see inflation touching the upper end of the Reserve Bank's inflation targeting band.

This might lead to talks of interest rates hikes. We are of the opinion that this will not happen and that both the oil price and the rand will remain in stable territory over the medium term. The minister's inflation forecasts for 2016 and 2017 are 5.9% and 5.7% respectively.

By addressing the budget deficits (projected 3.9% for 2015/2016 and 2.5% by 2017/2018) and the proposed curbing of government expenditure, Nene did a brilliant job of pleasing the rating agencies.

The minister has forecasted non-interest expenditure at 2.1% per annum over the next three years. The proof, however, is how well we stick to these targets. Should South Africa not live up to these expectations, rating agencies will not spare South Africa, and we could be downgraded to junk status.

This will have a detrimental effect on the economy as we will see portfolio outflows from both equity and bond markets that will lead to the depreciation of the rand and higher borrowing costs.

One big positive of the speech is the massive boost Nene gave to the manufacturing sector with a budget allocation of more than R10bn. This will surely provide a boost to the sector that desperately needs it and will assist with job creation, so long as the energy crisis can rectify itself.

On the topic of business, a simplified tax structure based on turnover for small enterprises will entice more entrepreneurs to enter the market. One can only hope that the red tape associated with the opening of a new business will also be removed.

The property sector also received a boost with properties only attracting transfer duties from R750 000 and upwards.

Nene will be collecting more money for our load shedding specialists by increasing the electricity levy from 3.5c/kWh to 5.5c/kWh to be reduced when the electricity shortage is over, most probably only in 2023. On a positive note, he however doubled the energy efficiency savings incentive.

Apart from the normal increase in sin taxes for the drinkers and smokers there was great emphasis on the importance of education, which receives the biggest slice of the budget pie.

The health budget was also increased by 8.8%. Social grants were increased in-line with inflation and importantly it was emphasised that the government salary bill is forecasted to remain at the 40% level. Hence, we can expect the government to take a stand against salary increases above inflation.

One final matter of interest is the fact that Nene, stated that VAT is up for discussion in the coming months, which can lead one to believe that an increase in VAT is almost a certainty for the next budget speech in 2016.

Overall, the budget speech was a good one, as one can assume it will please rating agencies, it did not completely apply the handbrake on growth and gave some room for small and start-up companies to manoeuvre.

The proof is whether South Africa can stick to this budget.

* TreasuryOne is an authorised financial services provider.

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