Could this be the scariest budget speech ever?

Gareth Stokes, FAnews Online Editor

As Wednesday’s budget speech draws near the bulk of our readers will have cast aside the positive New Year vibe and replaced it with more of a “doom and gloom” feeling. Whichever way we turn there are indications 2011 could be more difficult than we imagined. The stock market recovery is under threat as local share prices trade near the top of their historic valuations, and market analysts warn that we’ll see way less than last year’s 20% from our equity portfolios this year.

The inflation monster has woken from its slumber as fuel prices, food prices and regulated goods – driven by a weaker rand – go through the roof. Instead of benefiting from lower interest rates the average consumer is working out how to stretch his mortgage repayment “savings” far enough to cover the increases in cost of living. A couple of weeks ago those living and conducting business in Gauteng received another shock… Yes – we’d known about the SANRAL toll road proposal for some time – but we never expected the per-kilometre toll to be as high as recently announced.

Brace yourself – there’s more to come

Because 2011 is an election year, many taxpayers believe finance minister Pravin Gordhan will go easy on them come 23 February. This sentiment is expressed in an article in last Sunday’s Business Times, titled: But in an election year at least taxes are unlikely to rise. We could be in for a rude surprise – especially if we think the proposed National Health Insurance (NHI) will be shifted to the backburner again. Follow my reasoning for a moment and see if you agree.

In order to maintain its two thirds majority the ruling party is going to have to impress its ground level supporters. And the best way to secure ongoing support from this grouping – without suffering too much peripheral damage at the polls – would be to implement social benefits such as NHI and Social Security as soon as possible. At the very least I expect more detail on NHI funding – perhaps even the percentage of gross salary you and I will have to “pay”, possibly as early as the 2012/13 tax year. A number of tax experts believe we could see certain medical aid concessions abolished as early as 2011/12.

The problem with a welfare state is the taxpayer quickly loses a say in how his/her funds are applied. Instead of using tax revenues to placate the country’s five million registered taxpayers the funds are quickly swept aside to pay salaries in an inflated public sector, pay welfare grants and extend child support grants and other benefits. Government can afford to make unpopular decisions because the tax base simply doesn’t have the critical mass to derail it!

No change in existing tax rates, but...

National Treasury won’t try to increase the existing personal and company income tax rates this year. They will leave the top marginal rate at 40% (individuals) and 28% for companies. Under his predecessor, Trevor Manuel, local taxpayers benefited from billions of ran in tax relief. But Gordhan doesn’t have the room to offer similar relief to individuals this year. Instead, you can expect the income brackets to be left largely unchanged, with the result individual earners get bumped up into higher tax brackets thanks to their annual salary increases.

We will however see increases in sin taxes and the fuel levy. Consumers can expect to pay more for tobacco and alcohol products – which are hiked annually without fail. And you can expect to cough up much more for fuel thanks to another bungled project. A Transnet fuel pipeline between Johannesburg and Durban is now so over budget (the price tag has surged from R11.1 billion in 2008, to R15.5 billion in April 2010 and R23.4 billion by year end) and so behind schedule (shifted from 2010 to 2013) we can expect the current 7.5c/litre contribution to escalate by quite some margin. Local motorists already contribute 243.50c/litre for 93-octane petrol and 228.51c/litre for diesel to government coffers via the fuel levy.

Editor’s thoughts: It’s near impossible to guess what the finance minister will announce in his 2011/12 Budget Speech this Wednesday. As things stand it looks certain local taxpayers will have to tighten their belts significantly through 2011/12 and beyond. Do you think Pravin Gordhan will come clean on the impact of NHI – the cost to ordinary taxpayers – this year? Add your comment below, or send it to gareth@fanews.co.za