A light at the end of the tunnel?
The 2016 budget is not all bad. Did it meet expectations? No. Did it take on high-profile, easy to understand increases that everybody understands the repercussions of, like VAT or personal income tax? No. Is the budget loaded with stealth tax, essentially hiding the real pain points from the voting public? Yes. But if, and this is the big IF, the government is able to curb its spending, then it may get the job done – in the least offensive, and obvious, way possible.
The 24 February budget speech was heralded as the most anticipated speech since 1994. So did it deliver? On the bottom line, yes, but overall … not so much.
What was needed by South Africans, and the international eyes that watched, was aggressive and firm action to increase fiscal revenues in conjunction with clear action steps to curb spending, the combination addressing the issue of fiscal deficit, and avoiding a ratings downgrade. What we got was some sleight of hand stealth taxes and a statement of intent to cut government spending lacking in tangible deliverables.
Too harsh? Maybe. Gordhan did narrow the deficit and made some impressive promises on cutting back on government spending – provided that the government support that stance, which may be a big proviso given past performance.
The headline ‘no personal tax increases, no VAT increases’ leave the general population smiling, but completely unaware of what is to come – a political budget that flies in the face of the party line of transparency. A lack of transparency doesn’t only imply things that are completely hidden, but also couching things in terms that the average person can’t understand … A little ‘look over there’, while I pick your pocket.
There cannot be transparency without understanding. No increase in personal taxes? Great. But the largest actual increase in our revenue is based on an increase of existing levies and the introduction of new ones. Levies are just an indirect tax that result in the steady increase in the cost of living across the board.
Goods in South Africa are largely transported by road … So, an increase in fuel prices by 30c per litre and then throwing in a levy on tyres is going to have a significant impact on our entire economy; not just on people with cars or personal transport costs.
The future for consumers is looking pretty dismal, but many of them aren’t aware of it yet. The cost of basic food stuffs is going to gradually increase as the levy increases bite, not to mention the new ‘sugar tax’. I’m guessing the government are hoping the increase is gradual enough that the voters haven’t put it together by the time the elections come around.
Outside of that, there is the question of whether our finance minister did enough to reassure international investors and head off our possible downgrade to junk status. There were no ‘big moves’, no structural reform, no openness in addressing the fundamental problems we find ourselves with. The sudden drop in the rand a short way into the speech gave many of us a good scare before the correlation with Brazil being given junk status became clear. It still isn’t exactly inspiring. I guess it remains to be seen.
Author: Kevin Phillips CA(SA) is Managing Director of idu Software