Minister Nene balances the books on the backs of the poor
25 February 2015
Today the Minister of Finance, Nhlanhla Nene, tabled a budget that seeks financial relief from the pocket of every South African for government's poor financial management. In his speech today, Minister Nene effectively announced a string of tax increases without any significant focus on the real problems that face our economy.
Instead of taking bold steps to cut wasteful expenditure, annual losses to corruption that run into the billions and a bloated government bureaucracy, the Minister decided to foot the over-burdened taxpayers with this bill.
The DA's position on tax increases is clear - higher taxes mean people have less money to spend, lowering demand for goods and costing South Africans their jobs.
Included in his array of tax increases, Minister Nene announced that personal income tax rates will be raised by one percentage point for all tax payers earning more than R181 900 a year. This means that the 3.5 million South Africans who fall into this bracket will be funding government's avoidable shortfall.
The maximum rate of personal income tax is already higher than the majority of emerging economics including Russia (13%), Malaysia (26%), Brazil (27.5%) Peru (30%), Mexico (30%), India (33.99%), Thailand (35%) and Turkey (35%). South Africa's is now set to increase further to 41%.
This means that South Africans who would otherwise be spending money in the economy, increasing demand for goods and creating jobs, will now instead be channelling more money into the blackhole of government waste through increased tax.
Moreover, an increase in the fuel levy by 30.5c per litre was announced, which is nothing less than the government robbing South Africans of the relief that the low international oil price has brought about. This will significantly impact on jobs, as an increase in transport costs will burden small businesses disproportionally, resulting in a dampening effect on their capacity for job creation. While the Minister announced tax relief for small businesses with a turnover below R335 000 a year, the effect of raising transport costs counteracts this, bringing very little actual relief to the primary job creators in our economy.
It is disconcerting that the Minister announced in his MTBPS that he "will not balance the budget on the backs of the poor", yet he implements a tax regime that in effect does just that by creating an environment for more job losses and unemployment.
A temporary increase in the electricity levy was announced to assist demand management. This rise serves as the archetypal example of government making South Africans pay for its incompetence and financial mismanagement.
While the Minister failed to implement the short term solution to avoid a tax increase by cutting the enormous cost of corruption and maladministration and reduce the public sector wage bill, he has failed in the long term solution too.
An environment that stimulates the economy and creates jobs is what the country so desperately needs. This results in more people being employed, and a widening tax base from which government can draw revenue without raising tax. In order to do so, a focus on small businesses and entrepreneurs is essential.
While the DA's Alternative Budget pledges to spend R9.3 billion on stimulating and empowering small businesses in 2015 alone, Minister Nene's budget allocates an insufficient R3.5 billion over the next three years, focused on mentoring and training support to small businesses.
While the government's National Development Plan (NDP) foresees SMMEs creating 90% of the jobs required to meet its objective of 11 million jobs by 2030, today's allocation of just over R1 billion a year to support SMMEs is completely insufficient, and a slap in the face to the 35% of unemployed South Africans who would benefit from the jobs these businesses would create with more support.
The Minister failed to say anything of significance regarding the bloated public sector wage bill, besides being hopeful that a settlement would be reached as to the proposed wage increase by April. The DA's Alternative Budget committed to reducing the public sector wage bill by R4.3 billion through key interventions such as avoiding above-inflation salary increases, cutting back on salaries to superfluous departments, and linking salaries to performance. This was another missed opportunity by the Minister.
Undoubtedly one of the biggest strains on the public purse is the litany of state owned enterprises (SOE's) that are in financial ruins. Not only did the Minister fail to announce any new action, but he was silent on his commitment in the MTBPS to sell R20 billion worth of non-strategic assets to fund these SOE's.
His message was clear - the state will continue to fund dysfunctional SOE's, and the public will pay.
The DA would implement drastic reforms to address the ailments at Eskom and SAA, by privatising them wholly or in part, in order to encourage competition and efficiency.
To contain government spending, South Africans need to be provided with the tools to participate in economic activity, through meaningful measures that promote job creation and opportunity.
The budget tabled today was anything but that, effectively taking money out the pockets of South Africans to fund a government that fails over and over again to kick-start our economy.
Statement issued by Dr Dion George MP, DA Shadow Minister of Finance, February 25 2015
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