Budget: Economists expect personal tax cut

Strong South African government revenue growth should allow Minister of Finance Trevor Manuel to cut personal taxes by about R20-billion when he announces the 2006/07 Budget on Wednesday February 15.

But economists are divided on whether the tax relief will come in the form of adjusting brackets, which would benefit mostly the low- and middle-income groups, or in the form of a reduction in the top marginal tax rate, which would benefit the high-income group.

Last year, Manuel unveiled reductions in personal income tax totalling R6,8-billion for the 2005/06 fiscal year after R4-billion-worth of personal income-tax cuts granted in 2004.

Relief in 2005/06 took the form of adjusting brackets, while the top marginal rate was kept steady at 40%.

Some economists believe this should be cut to 38%, but others say that a reduction in the number of brackets to only four from six makes more sense.

The consensus is that personal income tax relief will total R20-billion, with a range from R18-billion to R30-billion.

Since 1996, South Africans have benefited from more than R66-billion in personal income-tax relief, primarily alleviating the tax on low-income earners.

Economists also expect companies to get tax relief, but once again there is no consensus as to how that should be implemented.

Some argue that the easiest is to lower the rate further by one or two percentage points, while others think the best option is to scrap the secondary tax on companies (STC), which is a tax on distributed profits and was introduced by Derek Keys to encourage investment in capacity expansions.

Manuel last year announced a one-percentage-point reduction in the rate of corporate tax to 29%.

A less likely option for the surplus cash is to eliminate or reduce the tax on retirement funds.

On exchange controls, most economists expect the government to ease the limits on individuals, which currently stand at R750 000, after companies and investment funds had their limits increased in October 2005.

The government fiscal deficit fell by 87,8% year-on-year to only R1,855-billion in the first nine months of the 2005/06 fiscal year, which started in April 2005.

In the first nine months, expenditure rose by 13% year-on-year, while revenue jumped by 19,1%.

The February 2005 Budget forecast a 13,5% increase in expenditure to R417,819-billion, while revenue was only expected to rise by 6,5% to R369,869-billion.

The October 2005 Medium-Term Budget Policy Statement changed this to a 12,8% increase in expenditure to R415,8-billion, while revenue is now expected to rise by 15% to R400,1-billion.

The National Treasury in February 2005 forecast that the deficit would increase by about 130% to R47,95-billion, but has since acknowledged that a surge in revenue in March last year means that the deficit would be at least R10-billion less than this.

The 2004/05 fiscal deficit was only R20,733-billion compared with R29,345-billion in the 2003/04 fiscal year and a budgeted R41,948-billion given in the February 2004 Budget.

The halving of the 2004/05 deficit was due to far higher revenue than expected, with revenue for the fiscal year rising by 16% to R347,291-billion, while expenditure increased by 12% to R368,024-billion. — I-Net Bridge

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Mandela steals Zuma’s coronation

Nelson Mandela on Sunday proved he is still the giant of African politics when he made a surprise appearance at the ANC's final campaign rally.

SA February PPI seen steady at 5,5% y/y

South Africa's February 2005 producer price index (PPI) is expected to remain at January's 5,5% year-on-year (y/y) increase. According to an I-Net Bridge survey of economists, the range is from 4,9% y/y to 5,9% y/y. The optimists expect the stronger rand to have kept factory gate prices subdued, while the pessimists believe rising oil and other commodity prices will lead to higher producer prices.

SA nuclear firm awards design contract

The Pebble Bed Modular Reactor's (PBMR) fuel division announced on Wednesday that it had awarded a design contract worth R10,5-million to a South African design house, Thermtron Projects, in a crucial second step in the PBMR fuel manufacturing technology, to prove sustainability on an industrial scale.

Petrol price: Good news may be in store

The Department of Minerals and Energy could implement a retail petrol price cut of about 15 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices, reversing the 14c/l increase implemented this month. The retail petrol price is adjusted monthly on the first Wednesday of the month.

Manuel tables conservative Budget

South African Finance Minister Trevor Manuel on Wednesday tabled a conservative Budget, eschewing corporate and individual income tax rate cuts, even though the revenue over-run in the 2005/06 fiscal year is projected at R41-billion. Compared with last year's Budget, when the fiscal deficit to gross domestic product ratio was forecast to remain near 3% over the medium term, Manuel this year reduced that to the 1,5% level.

Petrol price could drop by 12 cents a litre

The Department of Minerals and Energy could implement a retail petrol-price cut of about 12 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices. The retail petrol price is adjusted monthly on the first Wednesday of the month in accordance with the previous averaging period's over- or under-recovery.

Subscribers only

The shame of 40 000 missing education certificates

Graduates are being left in the lurch by a higher education department that is simply unable to deliver the crucial certificates proving their qualifications - in some cases dating back to 1992

The living nightmare of environmental activists who protest mine expansion

Last week Fikile Ntshangase was gunned down as activists fight mining company Tendele’s expansions. Community members tell the M&G about the ‘kill lists’ and the dread they live with every day

More top stories

Fifteen witnesses for vice-chancellor probe

Sefako Makgatho University vice-chancellor Professor Peter Mbati had interdicted parliament last month from continuing with the inquiry

Constitutional Court ruling on restructuring dispute is good for employers

A judgment from the apex court empowers employers to change their workers’ contracts — without consultation

Audi Q8: Perfectly cool

The Audi Q8 is designed to be the king in the elite SUV class. But is it a victim of its own success?

KZN officials cash in on ‘danger pay for Covid-19’

Leadership failures at Umdoni local municipality in KwaZulu-Natal have caused a ‘very unhappy’ ANC PEC to fire the mayor and chief whip

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday