1. Turbulent times
Budget 2016
Business School

2. Agenda General comments Proposals welcomed Concerns
Turbulent times - Budget 2016
March 2016

3. Proposals welcomed
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4. Introduction Tough environment Economic growth Inflation Exchange rate
Drought
Consumer and business confidence
Credit ratings
New finance minister
Fundamental change in environment since MTBPS
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5. Fiscal framework
Reduction in deficit to 2.4% of GDP over medium term welcomed
However, 3.2% deficit in 2016/17 should be reduced further (2015 budget 2.6%)
Credibility of commitment to reducing deficit to sustainable levels – repeated delays
Acceleration of portion of tax increases and spending cuts
Expenditure is the primary problem, not revenues
Turbulent times - Budget 2016
March 2016

6. Revenue forecasts Concern that 2015/16 tax revenue forecast optimistic
NT estimate at R4 billion below MTBPS estimate
Our estimate suggests shortfall at least R12 billion
Knock-on effect on deficit and 2016/17 revenue forecasts
Downside risk to forecasts if economic growth forecast not achieved
Turbulent times - Budget 2016
March 2016

7. Tax increase proposals
Nature of tax increases to limit economic impact
+- R13 billion structural increase
PIT increase borne mainly by high-income earners
Consumption taxes
Concern over CGT increases
No detail on 2017/18, 2018/19 tax increases
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March 2016

8. SA’s tax burden Gross tax revenues+- 28.4% of GDP in 2016/17
Increasing to 29.3% in 2018/19
Increasing tax burden unsustainable
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9. Tax burden International comparisons
2012 Tax : GDP ratios (excluding social security taxes) SA has 10th highest tax:GDP ratio globally. Higher than world and Africa averages. Situation has since deteriorated as illustrated on previous slide.
Source: The World Bank
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March 2016

10. Tax:GDP ratios of main taxes
Trend towards increased reliance on corporate tax revenues – starting to stabilise.
Contribution of VAT revenues remained fairly stable.
OECD averages:
Corporate tax – 2.9%
PIT – 8.8%
General consumption tax – 6.8%
SA has relatively high reliance on direct tax and low reliance on indirect tax
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11. SA’s tax mix OECD averages: Corporate tax – 12% PIT – 33%
General consumption tax – 28%
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12. Tax mix Risks of over-reliance on CIT Volatility
Negative impact on economic growth
Lower savings
Higher consumption
Reform tax mix
Shift from direct to indirect tax
Package with expenditure reform to maintain overall progressivity of fiscal policy
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March 2016

13. SACU revenue pooling
Customs duties shared based on relative intra-SACU imports
Excise duties shared based on relative GDP
Development component from excise duties based on relative GDP/capita
SA has significant trade surpluses with all other members
SACU exports by SA – R132 billion (2014)
SACU imports by SA – R28 billion (2014)
Cost to SA in 2014/15 – R51.7 billion out of R80 billion in taxes
Customs component formula heavily in favour of BLNS countries
SA contributes +- 97% to revenue pool
SA share of pool +- 45% (customs pool +-17%)
BLNS countries heavily dependant on SACU revenue share
Turbulent times - Budget 2016
March 2016

14. BLNS fiscal environment
Botswana
Lesotho
Namibia
Swaziland
SACU revenue reliance
30%
44%
35%
50%
Budget balance
Surplus
Large deficit
Small deficit
Corporate tax rates
22% (manufacturing/ IFSC 15%)
25% (manufacturing 10%)
32% (manufacturing 18%)
27.5%
PIT top rate
25%
37%
33%
VAT rate
12%
14%
15%
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March 2016

15. Questions?
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