Tuesday, 05 March 2013 - 20:00

 

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2013 National Budget Review

I initially planned to entertain you with a look at portfolio risk; however, since the flavour of the week seems to be Finance Minister Pravin Gordhan’s budget, this will have to wait as we look at some of the budget highlights.

From an economic perspective, it was clear that Pravin Gordhan did not want to shock anyone with the 2013/14 budget. All the main rates are relatively unchanged. Mr Gordhan is counting on faster economic and income growth going forward, expecting GDP growth of 2.7% in 2013 increasing to 3.8% in 2015. Due to tight fiscal conditions, spending cuts of R10.4bn will be implemented over the next three years, shrinking the budget deficit from the current 5.2% to 3.1% in 2015/16 and to stabilise the debt ratio.

Income Tax:
Minister Gordhan proposed income tax relief of R7bn, but this mainly compensates for the so called “bracket creep” which is where wage inflation pushes taxpayers into higher tax thresholds. 47% of the tax base is represented by people earning between R60 000 and R150 000 pa. They will receive R1.9bn or 26.6% of the tax relief. 2% of the tax base earns more than R1 000 000 pa, and they will receive R450m or 6.4% of the total tax relief. The maximum marginal tax rate will remain at 40% of taxable income above R638 600 pa.

For your retirement:
From 2014, an employer’s contribution to a retirement fund on behalf of an employee will be treated as a taxable fringe benefit. Individuals will be allowed to deduct up to 27.5% of the higher of taxable income or employable income for contributions to pension, provident or retirement annuity funds. The maximum allowable deduction per year will be R350 000, and any contributions above this cap will be carried over to the following year.
The exemption on interest earned for individuals older than 65 increased by R1 500 to R34 500. For individuals younger than 65, it was increased R1 000 to R23 800.

Sin tax:
Sin tax is calculated on a percentage basis of the overall sales price. Beer prices are up by 7.5c, spirits R3.60, wine 15c, and 60c on a packet of cigarettes.

Fuel:
The national fuel levy will increase by 22.5c/l whilst the 7.5 c/l as implemented for pipeline construction two years ago will now expire; essentially increasing by 15c/l increase, bringing the levy to R2.13. The levy for the Road Accident Fund increases by 8c/l to 96c/l of petrol. Carbon tax will be implemented on 1 January 2015 at R120 per ton of CO2.

Infrastructure and development:
Although some critics say that South Africa doesn’t have the capacity to spend the money allocated to infrastructure and development, over the next three years the plan is for R827bn to be invested into building and upgrading new infrastructure. This includes R1.8bn to increase the number of school teachers. The youth wage subsidy is also back (albeit diluted somewhat), R500m will go towards creating jobs for young people.

VAT:
VAT remains unchanged at 14%. Foreign businesses, such as iTunes, who distribute products and services in South Africa will also need to register as VAT vendors.

Corruption:
It was inspiring to see Pravin Gordhan’s strong response against corruption. A new Chief Procurement Office is being set up as a means to combat corruption. He praised the fact that some 216 corruption cases have been successfully settled.

So… what are the risks?
There were no surprises, and SA will continue on the same strategy as has been followed for the past three years. The Ministry expects CPI to remain between 5% - 6%. The budget deficit was revised upwards from 4.8% to 5.2% of GDP. Net debt is expected to stabilise at 40% of GDP. No mention was made about increasing personal tax on the super wealthy, or the new mining profit tax, but this may still come. Minister Gordhan did, however, warn that if growth did not pick up, there could be tax rate adjustments.

The spirit of the budget seems to be in the direction of anti-corruption, controlling expenditures, boosting revenue by job creation and stimulating growth. Minister Gordhan makes it clear that the time of wasting money is over. State spending should be effective.

These are some of the highlights of the 2013 budget. The real risks lie in the implementation of the budget and especially controlling the expenditure. One thing is certain, the level of taxation is not decreasing anytime soon.

Warm Regards,

Lourens Rabe

Sources:
www.moneyweb.co.za
www.bdlive.co.za
www.fin24.co.za

Feel free to look at the complete budget online.

www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966

Tue, 05 Mar 2013

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