There were no real surprises in Minister of Finance Trevor Manuel’s 2004/05 Budget on Wednesday, with modest relief for taxpayers, increased social spending, and higher “sin taxes” and fuel levies.
Lower to middle-income earners will be the main beneficiaries of R4-billion in personal income tax relief — 60% of which goes to workers earning less than R150 000 a year.
The primary rebate is raised from R5 400 to R5 800, increasing the threshold below which people do not pay any income tax to R32 222. For those 65 and over, the threshold is raised to R50 000.
Presenting his Budget to the National Assembly, Manuel said the domestic interest and dividend exemption threshold was being increased by 10% for people under the age of 65, from R10 000 to R11 000; and for those 65 and over from R15 000 to R16 000 — effective from March 1.
Housing
He also announced an increased exemption threshold for transfer duty of R150 000 from the beginning of next month, to facilitate the buying of homes in the lower end of the housing market.
In addition, stamp duties on mortgage bonds are to be scrapped from March 1.
Ad valorem duties on computer equipment and some printers was scrapped last year, and will be scrapped this year on all computer printers, recorded music, print film, certain cosmetic products, watches and clocks.
Pension and disability
In April, pension and disability grants increase by R40, to a maximum of R740; and the child support grant by R10, to R170 a month.
Fuel
However, the general fuel levy on petrol and diesel is raised by 10c a litre, to R1,11 and R0,95 respectively, from April 7, and the Road Accident Fund levy by five cents.
But, to offset the fuel levy increases, the diesel fuel rebate is increased by 15 cents a litre to provide relief for the agricultural, forestry and mining sectors.
Spending
The main Budget provides for total spending of R370-billion in 2004/05, rising to R439-billion by 2006/07. Revenue increases from R327-billion to R394-billion over the same period, resulting in a deficit of 3,1% of gross domestic product for 2004/05, but declining to 2,8% by 2006/07.
The revised estimate of revenue for 2003/04 is R300,3-billion, R4,2-billion lower than the original Budget estimate.
In 2004/05, R195,4-billion of nationally raised revenue will be transferred to provincial and local governments for the delivery of improved services to all South Africans.
This is about 62% of national revenue after debt servicing, and represents about 97% of all provincial revenue and 14% of local government revenue.
Provinces are expected to spend R65-billion on education, R41-billion on health, and R48-billion on social grants and welfare services.
Manuel said over the medium term, provinces and municipalities would prioritise labour-based infrastructure projects as part of the government’s expanded public works programme.
Over the next five years, R15-billion will be channelled to this intervention, in part through the provincial infrastructure and municipal infrastructure grants.
Together, these grants receive additional allocations of R3,2-billion over the medium term, which will be partially earmarked for labour-based public works.
Increased local government allocations are intended to speed up the delivery of municipal services, especially water and electricity, to poor households.
The local government equitable share rises by 12,1% a year, with a total budget of R28,5-billion over the next three years.
Total grants for infrastructure increase to R5-billion in 2004/05 and R6-billion in 2006/07.
On national spending priorities, a further R2,1-billion is allocated to combating HIV and Aids, including provision for anti-retroviral treatment programmes by provinces through a conditional grant.
Safety and security
The Budget also allocates an additional R1,9-billion over the next three years for enhanced safety and security.
In policing, this allows for recruiting additional officers, modernising and expanding the police’s fleet of vehicles, and upgrading support systems.
In pursuit of more equitable land ownership patterns, the land reform and restitution programme receives an additional R700-million.
Home affairs on wheels
The government is providing R850-million to the Department of Home Affairs to improve the efficiency of “core services”, including the provision of 67 mobile offices to underserved rural communities. Provision has also been made to computerise regional offices and to upgrade systems in general.
“These initiatives will be funded through additional allocations amounting to R850-million,” he said.
The money will be provided over the next three years — including R150-million this year, R300-million next year and R400-million in 2006/07.
Paying for your sins
Manuel announced increases in so-called sin taxes that will raise an additional R1,4-billion for government coffers.
The increases see a packet of 20 cigarettes costing 64c more, a 340ml can of beer four cents more, a litre of wine 21c more, and a 750ml bottle of spirits R1,76 more.
Manuel said the increases on tobacco products will raise an additional R794-million, while the increases on alcoholic beverages will raise a further R660-million.
Cigarettes go up by 16,55% to R4,53 for 20; cigarette tobacco rises by 11,70% to R139,04 a kilogram; cigars increase by 15,67% to R1,233,04 a kilogram; and pipe tobacco rises by 17,30% to R68,32 a kilogram.
A total tax burden (excise duties and value-added tax) as a percentage of the weighted average retail selling price would be 43% on spirits, 33% on clear beer, and 23% on wine, phased in over three years.
The tax on traditional African beer remains unchanged at 7,82c a litre.
Taxes on ciders and alcoholic fruit beverages increase from 143,6c a litre to 153,74c a litre.
Inflation
Manuel said the South African Reserve Bank’s inflation barometer, CPIX, should average 4,8% and remain firmly within the target range of 3% to 6% over the medium term.
Economic growth was projected at 2,9%.
He also announced minor exchange control reforms, along with measures to be implemented this year to allow foreign firms to list on South African capital markets, and provision for broad-based, tax-free share transfers to employees, a move aimed at black economic empowerment.
However, he gave a thumbs-down to suggestions value-added tax on books be scrapped, and to the introduction of a basic income grant. — Sapa
Special Report: The Budget 2004
Full Budget speech (PDF)