Comment on the Budget Speech 2016

Recently re-appointed Finance Minister, Pravin Gordhan, started his address to South Africans in this year’s budget speech with a simple message: “We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges,” he adds, “All of us want jobs, thriving businesses, engaged professionals, narrowing inequality, fewer in poverty.”

Throughout the speech emphasis was placed on igniting inclusive growth and taking corrective steps to ensure that South Africans do not find themselves financially worse off. Gordhan said in his speech that the government would increase the higher education expenditure by R16 Billion through the course of the year. “This increased expenditure is a key element to creating a skilled workforce and ensuring that the future generations can get onto their feet financially,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “And with the promised support for small business there is the potential for more entrepreneurs to enter the market within the various business sectors. This in turn will create employment opportunities and assist in building a productive workforce.”

Goslett points out that it is a good thing for the economy that Gordhan will not support ongoing bailouts of state entities. This will ensure that the said state entities are held financially responsible for any mismanagement of funds. Failing state entities are to be terminated and the surplus will be transferred to the balance sheets of strong entities that have the potential to grow.

According to Goslett the R62 billion housing subsidy will be an extremely good thing for those who fall within the affordable housing market. Currently the demand for affordable housing is growing exponentially with a great number of South Africans buying properties within this sector of the market. “Another element that will positively impact the affordable housing market is the Personal Income Tax relief for low income earners. This will essentially put more money in the back pockets of these individuals and put more people in homes,” says Goslett.  

The budget will also have an impact on the other end of the market with an increase in Capital Gains Tax (CGT), the criteria of which were not disclosed but will obviously target high-net-worth individuals. The transfer duty on properties price from R10 million upwards was also increased from 11% to 13%. “This is effectively a wealth tax which will impact only a small percentage of homeowners,” says Goslett. 

The government will introduce the sharing of international tax information, which will affect citizens who have sought tax relief internationally on income generating assets and investments. Investors will have to disclose all their international investments to the government. 

Gordhan pointed out that consumers need to be responsible with their borrowing and only take what they can afford. There are still too many households which are currently struggling with high debt levels. Households were encouraged to reduce their debt levels and start saving to make provisions for the future. 

“Interest rates are expected to continue to rise over the next year,” says Goslett. “The expected rate hikes along with the fuel levy increase of 39c, will increase the financial pressure on households that have high debt levels. Those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.”

He concludes by saying that he believes that the budget is fair under the economic circumstances the country finds itself in. The message instils confidence that through a well-drafted plan, things can be turned around - it now requires action and impeccable execution.