Budget 2017: Still at the Crossroads

Importantly, government revenue is projected to exceed non-interest spending on the Main Budget by 2018/19. The consolidated budget deficit narrows from -3.4% of GDP in 2016/17 to -2.6% of GDP in 2019/20, while gross loan debt, which investors must fund, is expected to peak at 52.9% of GDP in 2018/19. Meanwhile, the net debt ratio (gross loan debt adjusted for government's cash balances) is expected to increase to 48.1% of GDP by 2019/20 from 45.5% of GDP at the end of the current tax year. The importance of stabilising the debt position is illustrated by the continued sharp increase in Main Budget debt service costs on this debt from R146.3 billion in 2016/17 to R162.4 billion in 2017/18. This is absorbing scarce resources, which could be used for development expenditure.

Still, to achieve this the Minister needs to cut spending and increase taxes. Revenue raising measures are budgeted to amount to a material R28 billion in 2017/18 (0.6% of current personal total disposable income) and a further R15 billion in 2018/19. The introduction of a new top marginal tax bracket speaks to one of the key underlying themes contained in the Budget, namely addressing inequality. However, the bulk of taxpayers will be hit as the Minister nets R12.1 billion by only partially compensating for fiscal drag in the amount of R2.5 billion, whereas full relief through the adjustment of tax brackets would have amounted to R14.6 billion.

Moreover, although the Minister proposes an increase in the annual tax free savings account allowance from R30 000 to R33 000, which is welcome, the increase in withholding tax on dividends to 20% reduces the return on savings, which is not ideal in an economy with a dearth of domestic savings to fund investment.