Balancing South Africa’s budget is a complex task. Vast amounts of money are involved, with many people needing to pay and many people and organisations needing to be paid.
On 22 February, Finance Minister Pravin Gordhan presented his plan for how South Africa will earn and spend its money in the year to come.
Let’s look at a few questions and answers to better understand the budget.
Where does the government get the money it spends?
From every person living in this country, doing business here, or visiting it as a tourist. The income tax deducted from your pay and other earnings, the VAT you pay when you shop, the tax the company you work for pays – all of that goes into the government’s account.
Where does the government spend the money it gets?
The budget is allocated to the various government departments that have to spend that money on citizens and infrastructure to support and uplift the country through various projects and initiatives.
It also has to ensure that the debt we owe to other countries, institutions and individuals who have invested in or funded the country is repaid. This debt burden is significant and consumes a significant chunk of the budget.
The Minister of Finance, through the Treasury, is also responsible for ensuring that the money is spent appropriately and is not wasted. This is also our responsibility and is the reason why all of us have to be active citizens. The government spends the money we work hard to earn, and we have to hold it to account and not allow wasteful expenditure and/or corruption.
What does the 2017 national budget mean for you and me?
Firstly, if you are one of the approximately 100 000 South Africans who earn more than R1.5 million per year, you will pay more tax. Minister Gordhan introduced a new tax bracket of 45% for these high earners.
However, if you earn R75 750 or less a year, you don’t pay income tax at all. This threshold was increased from R75 000.
All of us are going to feel the pinch of the new fuel levy, which will see us pay 39 cents more for every litre of fuel that goes into our own vehicles or the taxis and buses we use, regardless of what the fuel price is.
We will also pay more for cigarettes and alcohol, thanks to an increase in the so-called sin taxes. As of 1 April, there will also be a tax on sugar.
What is the good news?
- For now, the VAT rate remains at 14%.
- Social grants have all been increased.
- The government will have to tighten its belt along with the rest of us – it has R10 billion less to spend in the coming year.
- Local governments are getting R1 billion to help develop public transport corridors and housing projects to make jobs and education more accessible to people who live on the outskirts of towns and cities.
- An extra R5 billion for higher education will be added to the R32 billion previously announced
- From 1 March 2017, you can contribute R33 000 per year toward savings accounts in which all returns are tax-free.
- The tax break you get for your medical scheme contributions increased from R286 to R303 per month for the first two dependants.
- Make sure you contribute to a retirement fund as that will decrease the amount on which you pay income tax, and you will be making provision for your old age.
What can you do about the budget?
Obviously, you can’t refuse to pay income tax and VAT, but you do have some choice in other areas.
For instance, if you drink and smoke less – or even stop altogether – the increase in the sin taxes won’t affect you. You’ll also save a whole lot of money and your health will benefit, which could save you, even more, cash on doctors’ visits and medicine.
The new sugar tax doesn’t have to be a heavy burden, either. It is your choice to buy sugary drinks or not. Apart from saving money, you will also do your health a favour.
More expensive fuel is more difficult to manage, but you could try to start or join a lift club or use public transport to get to and from work (if you don’t already). You can also cut down on non-essential travel. If you have your own vehicle, make sure it is completely roadworthy and that its engine is serviced regularly to be as fuel efficient as possible. You can also adapt your driving habits to improve your vehicle’s fuel consumption.
The best thing you can do is to focus on your personal finances, which is within your control. Draw up a budget, keep a close eye on your expenses, and save as much as you can.