South Africa targets wealthy in budget, sees growth improving

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South Africa targets wealthy in budget, sees growth improving

8:12 CAT | 23 Feb 2017

South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg January 17, 2013. . REUTERS/Siphiwe Sibeko

Reuters (File photo) / South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg January 17, 2013.

South Africa will target high earners with a new personal income tax, Finance Minister Pravin Gordhan said on Wednesday, in an effort to boost revenues and trim the budget deficit amid disappointing economic growth and very high unemployment.

In his budget speech, Gordhan said the Treasury forecast growth this year of just 1.3 percent, up from 0.5 percent in 2016 but still well below the government’s 5 percent target.

Financial markets have been rattled by media reports that Gordhan, seen by investors as a guarantor of stability, might be moved from the Treasury in a cabinet reshuffle. On Wednesday he said it was President Jacob Zuma’s prerogative to fire him.

“The projected rate of growth is not sufficient to reduce unemployment or impact significantly on poverty or inequality,” Gordhan said, adding the budget aimed to balance government spending commitments and the long-term health of state finances.

Unemployment stands at a near-record 26.5 percent.

The new top income tax rate of 45 percent will apply to annual taxable incomes of above 1.5 million rand ($114,000). Additional taxes on fuel, alcohol and tobacco will also boost revenues, Gordhan said.

The combined measures are expected to reduce the budget deficit to 2.6 percent of national output by 2019/20 from 3.4 percent now, he said.

Gordhan said a rebound in commodity prices, improved electricity supply and easing drought conditions, among other factors, would help to boost economic growth this year.

However, investors are on tenterhooks ahead of the ruling African National Congress (ANC) conference in December to pick a new party leader to replace Zuma, and Treasury officials have said political upheaval could derail improving economic growth.

South Africa is also faced with a possible downgrade to junk, which would raise debt-servicing costs.

Razia Khan, Africa economist at Standard Chartered Bank, said Gordhan’s budget was “in a word, disappointing”.

“(It has) token tax changes, that might hit the right note politically, like raising the top rate of tax to 45 percent for high income earners, but are of questionable usefulness in generating the additional revenue that South Africa needs,” she said.

($1 = 13.1600 rand)

Source: Reuters