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Deloitte SA 2015/16 Budget

Leadership is tested in times of strife 

The interest of ‘arm chair’ budget observers is piqued. When Minister Nhlanhla Nene presents his very first Budget Speech for 2015/16 on 25 February 2015, he will be under intense scrutiny

Leadership is tested in times of strife

By: Nazrien Kader, Managing Partner Deloitte Africa Taxation Services

The interest of ‘arm chair’ budget observers is piqued. When Minister Nhlanhla Nene presents his very first Budget Speech for 2015/16 on 25 Februry 2015, he will be under intense scrutiny - firstly, because of the numbers he will present and the signals these are likely to give about Government’s intentions and secondly, perhaps unfairly, because he will be compared to his predecessors: Minister Manuel for his ‘swagger and style’ and Minister Gordhan for his ‘no nonsense’ approach.

He will take the podium against the backdrop of a much debated electricity crisis, ‘moderating’ inflation, a volatile Rand, subdued economic growth, a rising tax:GDP ratio (from 25.4% to 26.1%), low savings and a Government wage bill that continues on its upward trajectory. Globally, rating agents will also be watching closely with at least one major rating agent having South Africa’s sovereign rating currently on ‘negative’ watch.

Given the Presidential commitment to an ambitious mandate involving a significant investment in infrastructure to revitalise the economy, all eyes will be on Minister Nene as he will try to balance ‘expansionary’ with ‘austerity’ measures, while staying the course that his predecessor set with Government’s commitment to a spending limit for 2016/17, holding real non-interest expenditure growth to an annual average of 1.8% per cent over the three-year spending period. This is a reduction in the ceiling set in the 2013/14 budget reflecting the tightening fiscal constraints that South Africa currently faces.

Whilst tax collections have always out-performed estimates, the question is whether this trend can be sustained against the backdrop of current economic conditions and declining growth prospects – not just in SA but in Africa and the BRIC region. In his Medium-Term Budget Statement Minister Nene revised revenue collections slightly downwards from R962 billion to R956 billion (2013/14 collections equalled R900 billion).

No doubt strong fiscal stimulus is necessary – and one way to stimulate the economy is through tax reforms. Whilst raising taxes may be both unwise and unpopular, it is conceivable that the marginal rate of tax for individuals may be lifted to the late 80’s level of 45% - whilst maintaining a robust approach to the alignment of tax policy to global standards and a continued focus on the 3 Cs: (1) Compliance (2) Collections (3) Co-operation (locally with Business and High Net Worth Individuals and globally with Revenue Authorities worldwide).

With a rising tax to GDP ratio (hovering around 26.1%), a profile of tax collections that is expected to mirror that of previous years (with individuals likely to retain the highest level of contribution, VAT a close second and company taxes, third in line), it is to be expected that the focus will continue to be tax anti-avoidance in the form of measures to counteract tax-base erosion and profit-shifting for companies and wealthy individuals (including the expat community).

Another interesting development in the last few months has been the rigour with which the newly appointed Commissioner for the South African Revenue Service, Thomas Moyane has dealt with matters at the South African Revenue Service. ‘Arm chair’ budget observers will also be looking out for signs of consistency in messages from Minister Nene to the South African public, on tax policy, proposals and enforcement in the long term.

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