Nene gives, but takes more – economist

Electricity levy increase criticised by industry.

Tax payers have received some relief from Finance Minister Nhlanhla Nene who delivered his budget speech on Wednesday, but the net effect will be more pressure on their pockets, says Absa economist Jacques du Toit.

Du Toit said Nene clearly appreciates the pressure on the economy and did what was expected by increasing the marginal personal income tax rates by one percentage point for all taxpayers earning more than R181 900 per annum.

The finance minister provided personal tax relief to lower and middle income groups earning up to R450 000 per annum, but still gains about a net R900 million on personal tax.

Mike Schüssler, chief economist at Economists.co.za, says only workers earning less than R15 000 per month wil receive substantial tax relief.

On the whole, Du Toit believes Nene managed to find a good balance between what he gave and what he took and did what he had to with State revenue which is under pressure due to low economic growth and high expenditure.

Schüssler praised Nene for his frankness. “He did not sugarcoat the budget and did what was necessary by raising personal tax.”

Fuel price rise

Du Toit said the increases to the fuel levy – 30.5c/l on the general fuel levy and 50c/l for the Road Accident Fund (RAF) will amount to another R6.5 billion that has to come from the pockets of most South Africans.

The 50c/l increase in the fuel price for the RAF was unexpected and together with the 30.5% increase in the general fuel levey this is a very high increase, says Schüssler.

Transfer duty

Du Toit said the elimination of transfer duty on the sale of property below R750 000, up from R600 000 came as a surprise. This will assist middle and lower income households to buy property.

Nene at the same time introduced a new category of transfer duty on that portion of the sales price exceeding R2.25 million, which Du Toit says will put pressure on the top end of the market, along with the increase in personal tax for top earners which now stands at 41%.

Schüssler welcomes the higher transfer duty threshold, saying South Africa has an exceptionally high percentage of home owners. “It will be good for homeowners if this can stimulate the property market.”

Electricity tariffs

Schüssler added that the proposed increase of 2c/kWh in the electricity levy constitutes a 57% increase. It is however necessary to stabilise Eskom, he says.

Shaun Nel, spokesperson of the Energy Intensive User Group that represents about 30 of Eskom’s biggest clients using about 45% of its total consumption, is very critical of the increase in the electricity levy. He says it is a tariff increase slipped in through the back door without going through the national energy regulator (Nersa).

Nel says the increase will have a massive impact on industry. If government goes ahead with plans to introduce carbon tax in 2016 it will create an environment that is decidedly investment-averse, he says. “Industry is now suffering huge tariff increases as well as a lack of access to electricty,” he says.

Nel would not comment on the levy government is considering imposing on large users protected from tariff increases because their tariffs have been agreed upon in contracts. He said the EIUG will have to first understand what it entails before it can comment.

The Chamber of Mines said Nene’s first budget review demonstrates a continuity in disciplined and prudent fiscal stability. “This is critical for investor confidence, especially in light of the credit downgrades experienced recently.”

The chamber said the downward revision of GDP for 2015 to 2% highlights the need to resolve electricty constraints. It also bemoaned the higher electricity level. “While the mining sector continues to participate in large scale electricity demand reduction programmes, the increased expense to the sector from the higher electricity levy will result in further cost pressures. Although the diesel refund system and electricity tariff incentive increase is welcomed, it is not likely to sufficiently off-set the levy increase.”

The chamber called on government to work with the private sector by accommodating independent power producers to increase electricity supply. “Through private participation, the funding burden and risk of further fiscal pressures are reduced.”

The chamber voiced its opposition to carbon tax in the light of weakening commodity prices and the subsequent pressure on mining revenues.

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