How bad is the budget for us?

The Budget has come and gone and with all the media discussion, speculation and analysis, the nation is left pondering what the real effect of the budget is.  It what was quite clear that the Minister of Finance had very little room to manoeuvre. And, as we’ve seen, the remarkable over-collections over the past twelve budgets delivered by this Minister, has alarmingly reversed into a R14 billion under-recovery for 2009, and a further budgeted under collection of R50 billion for 2010.

These under-recoveries represent a dramatic change in economic activity in South Africa and it has resulted in a budget deficit for the first time in twelve years.  The Budget deficit of 3,8% of GDP will increase State borrowings, which, although a new phenomenon relative to the success of the past couple of years, it is still low compared to many other countries in the world and controllable.

Whichever way you look at it, it was not going to be easy to table a finely tuned budget that would satisfy all and to keep South Africa more or less on track.  It is after all an election year and, typically, politicians tend to promise what they can’t deliver.  But Minister Manual has refrained from empty promises by presenting a very tight budget. Electioneering politicians love to promise more social spending.  Even President Obama had to apologise after his election for making tax promises he could not keep.

The budget has, over the past several years, focussed more on social expenditure items, such as social grants and poverty relief.  This year is no exception.  The Minister announced that R12 billion more will be spent on social grants; R4,1 billion for the second phase of the expanded public works program; R4 billion for the school nutrition program; R4,1 billion for provincial infrastructure, especially school buildings, roads and clinics; R3,7 billion more for increased housing provision; R6,4 billion for public transport, roads and rail infrastructure and almost R1 billion for the treatment and prevention of HIV and AIDS.  For those who say the government policy has changed towards more socialist budgeting, whatever the definition is, the budget has over the past several years catered for substantial spending on social development.

The Minister announced that consolidated expenditure on social protection will reach 4,8% of GDP during the coming budget year.  If one adds expenditure items such as social protection, housing development and community development, these items already comprise more than 21% of the total national expenditure.  There is therefore a whole lot that the government is already doing to support and develop social upliftment programs, and it is always going to be an issue in any given year whether enough has been done.

Given these constraints and the economic downturn, how has the budget actually affected the individual taxpayers, who account for almost 30% of the national revenue collection?

Much has been said about the announced R13,6 billion of relief for taxpayers.  But if one takes into account an array of increases in various indirect taxes, the net effect of the tax relief is only about R4,5 billion.  So it is very much a case of the one hand giveth and the other taketh.  It was also announced in the budget that the main portion of the R13,6 billion relief will go towards fiscal drag or bracket creep, in other words, a relief measure to avoid the negative tax effect of the inflation and the extent to which the inflation may push individual taxpayers into a higher tax bracket which would otherwise result in a higher tax bill compared to the prior year.

The Minister has succeeded in curbing the effects of fiscal drag by the adjustment to the tax tables for 2010.  Take for example, a scenario where taxpayers have been given salary increases to compensate for the effect of inflation. In all the income groups, the new tax tables will ensure that the effective tax rate of individuals is more or less constant and the same as last year, except for the very low end of the salary scale where there has been a considerable relief in the amount of tax paid.  The net result is that, in all categories, the take home pay will have been fully adjusted for the effects of inflation and individuals will not receive less money as a result of the effects of inflation.  However, the opposite is true where individuals did not get any salary increase for the next year, or where the increase did not keep pace with inflation.  In those cases, the take-home pay will be considerably less in all categories compared to the prior year.  The effect of inflation will therefore have eaten into the amount of money that individuals will take home.

Relief for the inflationary measures is the only relief that the Minister has succeeded in achieving through this budget and it is only a relief measure if viewed in isolation.  If you add all the additional items of indirect taxes, such as:

* fuel levy : 41cents per litre more;
* plastic bags: increase of 1c per bag;
* incandescent lightbulb : R3 per bulb;
* international travel : R30 more per departure;
* cigarettes : 88cents more per packet of 20;
* 750ml whiskey : R3,21 more;
* electricity tax : 2c per kilowatt more,
 
then the relief granted to compensate for the effects of inflation, is eroded and the reality is that through all these additional measures, particularly the higher fuel levy which will lead to an increased fuel price, as well as the announcement that effectively from next year onwards the travel allowance for employees will all but fall away. There is little relief.

The actual effect of the budget is therefore worse for taxpayers than the promised tax relief may appear to bring.

This is going to be another difficult year for consumers and I predict that more and more people will become frustrated and angry at wastage, corruption and mismanagement when the effects of the budget will bite deeply into their lifestyles and in many instances, survival.

The time has come for all taxpayers to take a stand against mismanagement of scarce resources, corruption, poor service delivery, abuse of state funds and unacceptable performance in many areas of the State.  The time has come to insist that hard-earned taxpayer money is spent wisely and properly.