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Budget Presentation:
“Leftward Liaisons”Presented by: Dawie Roodt
4 March 2008
A clear leftward shift can be seen in political leadership…
..But in the mean time the old guard still rules…
In This Presentation:
1. Economic Overview
2. Fiscal Background
3. 2007/08 Revenue
4. 2007/08 Expenditure
5. Social Expenditure Analysis
6. Funding
6. Budget 2008/09 - Highlights
Economic Overview:The Grazing Ground
2006 2007 2008
M3 (end of year) 23.1% 23.7% 19.8%
PSCE (adj. end of year) 27.6% 22.2% 16.6%
CPIX (average) 4.6% 6.5% 8.1%
Prime (end of year) 12.5% 14.5% 14.5%
Current Account: Nom -R111.0bn -R138.2bn -R145.1bn
Current Account: GDP -6.4% -7.0% -6.5%
R/$ (end of year) 7.04 6.84 8.40
GDP (full year) 5.4% 5.1% 3.5%
Economic Overview
Inflation
Inflation bracket
CPI & CPIX
0
3
6
9
12
15
2002 2004 2006 2008
%
Source: StatsSA and own calculations
CPIX Ave: 5.9%
Interest rates
Prime
10
11
12
13
14
15
16
17
18
2002 2004 2006 2008
%
Mboweni Ave: 12.8%
Toothless SARB
Source: SARB and own calculations
A Quick Eish’kom Calculation
Vision:"Together building the powerbase
for sustainable growth and development."
R60bn ‘investment’…?
Load Shedding: The 3 Hour Effect
Average GDP per day:• GDP, 2007 (current): R1,973.4bn• Workdays: 240• GDP per day: R8.3bn
Average GDP per sector:• Allocate equal weights to GDP sectors: (3 out of 24)
– Loss per day: R1.1bn (13.3%)
Average GDP loss per sector:• Allocate weights to GDP sectors:
– Finance, real estate and business services (3 out of 8)– Mining and quarrying (3 out of 24),etc.– Loss per day: R1.9bn (22.8%)
Potential Job Losses
Case Study:
+/- 400 000 employees in Mining Sector
Mining production at 90% electricity – Lose 15% - 20%
1% loss in production = 1% reduction in workforce
Thus, potential reduction in mining workforce:
60 000 – 80 000 jobs lostSource: Thousands face job chop at GFI, 31 Jan 2008, Fin24
GDP Loss: Base-Case Scenario
Revised Growth Estimate: 4.6% to 3.0%
Loss in real terms: R19.76bn
Potential Tax Revenue loss: R5.9bn
Extra Load Shed on Consumers
‘Alternative Energy’ Cost - Generator
Facility Generator Size (KVA)
Capital Cost p KVA
Total Capital Cost (excl. installation)
House 10 KVA R1250 – R5000
R12 500 – R50 000
Small/Medium Business
60 – 80 KVA
R1400 – R3000
R84 000 – R240 000
Supermarket/Butchery
130 – 140 KVA
R1300 – R2500
R169 000 – R350 000
Source: Efficient Research
• Electricity Levy (2c per KWh)• Efficient Lighting Roll-Out Programme
– Compact fluorescent light fittings (CFL’s)• Solar Water Heating Programme
– Government subsidise 20% – 30%– Cost R7 000 – R20 000 (R25 000) per geyser
• Fuel Switching– Liquefied Petroleum Gas used in cooking
‘Demand Side Management’
maybe not such a bright idea…
Fiscal Policy:Background
Background
Revenue & Expenditure:GDP
20
21
22
23
24
25
26
27
28
29
30
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
%
Trevor’s reign!
Gold
Deficit
Surplus
FISCAL 2007/08…
Revenue: Fiscal 2007/08
Revenue Sources (1994)
39%
13% 26%
5%
8%
9%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
Revenue Sources (Est. 2007/08)
30%
26% 27%
3%
4%
10%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
Contribution to Fiscus
Is Tax Crowding Out Savings..?Personal Income Tax vs Household Savings
(base year 1990 - real)
-50
0
50
100
150
200
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
2006
HH Savings Index PIT Index
Source: SARB Quarterly Bulletin, December 07 & MTBPS Oct 07; Efficient Research
Cro
wd
ing
Ou
t ?
Is Tax Crowding Out Savings..?Corporate Income Tax vs Corporate Savings
(base year 1990 - real)
50
100
150
200
250
19901992
19941996
19982000
20022004
2006
CS Index CIT Index
Cro
wd
ing
Ou
t ?
Source: SARB Quarterly Bulletin, December 07 & MTBPS Oct 07; Efficient Research
Registered Income Tax Payers
Individuals Companies Trusts Total
Registered Taxpayers
5.0 million 1.7 million 300 000 7 million
Source: Fin24, Sep 2007
Tax Comparison: Companies
Company Tax Rates
0
5
10
15
20
25
30
35
40
45
0 10 20 30 40 50 60
Countries
%
Source: worldwide-tax.com
South Africa
Bulgaria
Egypt
Average: 26.6%
Median: 29.0%
Ireland
USA
South Africa + STC (’06)
South Africa + STC (’07)
Tax Comparison: Individuals
Individual Marginal Tax Rates
10
20
30
40
50
60
0 10 20 30 40 50
Countries
%
Source: worldwide-tax.com
South Africa
Russia
Denmark
Average: 35.4%
Median: 36.0%
USA
Ireland
Tax Comparison: VAT
VAT Rates
0
10
20
30
0 10 20 30 40 50
Countries
%
South Africa
Ireland
Denmark
Singapore
Source: worldwide-tax.com
Average: 16.7%
Median: 18.0%
Results...
• Tax Burden shifted to companies
• Crowding out of Individual and Company savings
• Few income tax payers
• Internationally:
– Income tax rates high
– VAT tax rate low
2007/08 in Review:Revenue
R bn Budget ’07 Budget ‘08 Expected Diff. (%)
Income Tax 312.2 332.1 330.0 -2.1 (-0.6%)
Individual 155.3 168.5 166.9 -1.6 (-0.9%)
Company 138.5 141.4 142.6 1.2 (0.8%)
STC 16.0 20.2 18.3 -1.9 (-9.4%)
Other 2.3 2.0 2.0 0.0 (0.0%)
VAT 155.1 147.0 150.0 3.0 (2.0%)
Excise Duty 17.8 18.0 17.9 -0.1 (-0.6%)
Fuel Levy 23.9 24.0 24.3 0.3 (1.3%)
Other 54.0 59.0 55.6 -3.4 (-5.8%)
Total 544.6 557.9 557.3 -0.6 (-0.1%)
Reasons collection changes• Individual tax
Employment and Wage increases (inflation)
• Company tax Consumption driven High commodity prices
• STC High profits Foreign demands
• VATLarger VAT refunds
Lower VAT Collection Reasons
Why:• Larger VAT refunds
– Higher non-wage input costs– Higher levels of fixed investment– Inventory accumulation caused by moderation in household
consumption expenditure
Household Consumption Expenditure Trends (2007 Quarter Three):• Durable goods: Lower vehicle sales (consumer confidence, industry strike)• Semi-durable goods: Lower sales of clothing and footwear• Non-durable goods: Lower sales of food, beverages and tobacco• Services: Slower growth in financial services sector, consumer spending on
banking services
Sources: MTBPS October 2007, SARB Quarterly Bulletin December 2007
Final Consumption Expenditure by Households
Final Consumption Expenditure by Households (Q:Q)
0
1
2
3
4
5
6
7
8
9
10
Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07
%
Source: SARB and Efficient Research forecast
Expenditure: Fiscal 2007/08
Total Expenditure Trend Over Time
Expenditure: GDP
20
21
22
23
24
25
26
27
28
29
30
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
%
Trevor’s reign!
Source: SARB and Efficient Research Forecast
Spending Priorities
Expenditure: Functional Classification (1994)
7%
17%
14%
17%2%
21%
8%
4%
10%
43%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Expenditure: Functional Classification (Est. 2007/08)
6%
16%
15%
9%1%
18%
16%
8%
11%
52%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Social Spending
2007/08 in Review:Expenditure
R bn Budget ’07 Budget’08 Expected Diff. (%)
Voted Amounts 299.2* 308.1 305.2 -2.9 (-0.9%)
Central Gov. 40.8 42.0 40.6 -1.4 (-3.3%)
Fin. & Admin. 21.7 21.4 21.1 -0.3 (-1.4%)
Social Services 102.7 104.8 104.4 -0.4 (-0.4%)
Justice & Protect. 79.9 80.5 80.9 0.4 (0.5%)
Eco. & Infrastruc. 54.0 59.4 59.5 0.1 (0.2%)
State Debt Cost 52.9 52.8 52.7 -0.1 (0.2%)
Transfer Provinces 171.3 172.8 172.8 0.0 (0.0%)
Other 7.5 8.3 7.8 -0.5 (-6.0%)
Total 533.8 542.1 539.1 -3.0 (-0.6%)* Includes: Contingency Reserve (R3.0bn)
Social Expenditure Analysis:Money Well Spent?
Health
Public Expenditure on Health Comparison (2003-04)
Source: Human Development Report, 2006 (undp.org)
Public Health Expenditure as % GDP
0
1
2
3
4
5
6
7
8
9
0 20 40 60 80 100 120 140 160Countries
% GDP
South Africa (‘04&’06)
Myanmar
Iceland
Average: 3.5
Median: 3.0
CubaMalawi
South Africa (’07)
Private Expenditure on Health Comparison 2004
Source: Human Development Report, 2006 (undp.org)
Private Health Expenditure as % GDP
0
1
2
3
4
5
6
7
8
9
0 20 40 60 80 100 120 140 160 180Countries
% GDP
Solomon Islands
Average: 2.5
United States
South Africa
Core Health Care Indicators
Health Care Indicator Number (2004) Density per 1,000
SA vs. (Sample average)
Physicians 34,829 0.77 (1.45)
Nurses 184,459 4.08 (3.45)
Dentists 5,995 0.13 (0.32)
Pharmacists 12,521 0.28 (0.35)
Community health workers
14,306 0.32 (0.98)
Health management and support workers
22,859 0.51 (1.84)
Source: World Health Statistics 2007, WHO (www.who.int)
Public Health Expenditure (2003) vs. Physicians 2004)
Source: Human Development Report, 2006 (undp.org)
Health Spending vs Physicians
0
4.5
9
0 300 600
Number of Physicians, per 100,000
Hea
lth E
xpen
ditu
re (%
GD
P)
Malawi
Cuba
Saint Lucia
Canada
South Africa 2004
South Africa (2001)
Education
To Stay or Not to Stay...??
Total Self Declared Emigrants (thousand)
6.5
10.0
13.5
17.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Source: Documented Migration Publication, StatsSA
To Stay or Not to Stay...??UK Australia Canada South Africa
Average Destination of Emigrants (%)
33% 15% 3%
Eco Indicators
Real Eco Growth (GDP, Q3)
2.4% 4.3% 2.9% 4.7%
Inflation (CPI, avg. 2008) 2.1% 3.2% 1.9% 7.2%
Currency p US$ £0.51 $1.14 CAN$1.02 R7.10
Marginal Tax Rate 40% 48.5% 29% 40%
Socio Indicators
Life Expectancy at birth 79.0 80.9 80.3 43.0
Adult Literacy rate (>15yr,%)
99.0 99.0 99.0 82.4
UN HDI Rank 16th – 0.853 4th – 0.961 3rd - 0.962 121th– 0.674
Murders p capita, rank (100 000)
46th – 1.4 43th – 1.5 44th – 1.49 2nd – 49.6
Sources: Economic Indicators, Economist. UN HDI 2007/2008, 7 th UN Survey of Crime Trends 1998 – 2000
Importing Skills – A realistic solution..?
Proclivity to Attracting Talent (2007)
10
15
20
25
30
35
40
0 5 10 15 20 25 30
Countries
Sco
re
Proclivity to Attracting Talent
US (1st)
UK (7th)
Australia (6th)
Canada (3rd)
India (17th)
China (26th)
South Africa (30th)
Source: “Mapping Global Talent” - Heidrick&Struggles and The Economist Intelligence Unit, 2007
Education Comparison
Expenditure on Education as % GDP, 2006 5.4% (4.7%)*
Teachers per capita (1000), 2005
- Primary
4.5 (5.1)*
Teachers per capita (1000), 2005
- Secondary
3.2 (5.4)*
*Weighted Average (190 countries)
Source: World Development Indicators Database, Human Development Report, 2006 (undp.org)
The Reading Literacy of Fourth Grade Students
Source: US Department of Education, PIRLS 2006
Progress in International Reading Literacy Study (PIRLS)
250
300
350
400
450
500
550
600
0 5 10 15 20 25 30 35 40 45 50
Countries
Sco
re
High Intermediate Low None
Russian Federation(565)United States (540)
Macedonia (442)
South Africa (302)
Morocco (323)
Qatar (353)
Breakdown: Population Education
Over 20's Population Education (%)
16
5.9
40.1
9.1
10.3
18.6
No Schooling
Some Primary
Completed Primary
Some Secondary
Grade 12
Higher
CS 2007
Source: Community Survey 2007, StatsSA
Canada – 50.6%
Ireland – 47.9%
Japan – 47.7%
U.S. – 39.0%
Mexico – 18.1%
Poland – 15.3%
Hungary – 14.75%
SC HG Maths & Science Passes
Source: Department of Education, Education Statistics in SA at a glance , SC Examination Results, 2006
Enrollment for SC HG Maths and Science as % of SC enrolment
Source: Department of Education, Education Statistics in SA at a glance , SC Examination Results, 2006
13.3%
9 %
Government Targets for SC HG Maths passes vs. Actual passes
Achieved
Targets
Sources: Department of Education, Statistics in SA at a glance, 1999 – 2005; Senior Certificate Examination Results, 2006.
Pass Rates for SC, SC HG Maths & Science
Source: Department of Education, Education Statistics in SA at a glance, SC Examination Results, 2006
53% HG Maths Passes – 4.8%
43% HG Science Passes – 5.7%
Senior Certificate Mathematics Results (2006)
11%
81%
71%
16%
Source: Department of Education, Education Statistics in SA at a glance, SC Examination Results, 2006
Time Spent by Teachers on Different Activities
Time Spent by Teachers
41%
14%
12%
9%
7%
5%5% 3% 2%2%
Teaching
Preparation and Planning
Extra-Curriculat
Assessing/Evaluating
Managing/Supervising
Prof Dev
Record Keeping
Pastoral Care
Breaks
Guidance/counselling
Source: “Educator workload in SA”, Pretoria: Human Sciences Research Council, 2006
85% – Optimal Time Allocation
Alternative Solutions…?
SETA:– 5 Seta’s researched in 3 Sectors– Key Findings:
• Only 2% of employees benefited • Seta's themselves define ‘scarce’ skills with their capacity
to address the priorities• Demands to provide foundational education vs.
occupational skills • ‘Second Education’ instead of skills development
Source: “The Skills Revolution”, Centre for Development and Enterprise Oct 2007
“..Our Seta's held over R3.7bn in cash
reserves…”
- MTBPS, 07
Social Security and
Welfare
Correlation? Household Expenditure vs Social Grants
Consumption Expenditure on Food, Beverages and Alcohol vs Social Grants (Index base = 1999)
50
75
100
125
150
HH Exp Index SocExp Index
Source: 2007 Budget, SARB Quarterly Bulletin; Efficient Research
1% Increase in Social Grants = 0.60% increase in Household ExpenditureR-squared = 0.995 (small sample)
Correlation? Excise Duties vs. Social Grants
Excise Duties vs. Social Grants (Index base = 1999)
75
125
175
225
275
1999 2000 2001 2002 2003 2004 2005 2006
50
100
150
200
250
Excise Index SocExp Index
1% Increase in Social Grants = 0.49% increase in Excise DutiesR-squared = 0.966 (small sample)
Source: 2007 Budget, SARB Quarterly Bulletin; Efficient Research
Negative Correlation? Social Grants vs. Savings
Social Grants vs. Savings (Index base = 1999 - real)
-100
-50
0
50
100
1999 2000 2001 2002 2003 2004 2005 2006
100
150
200
250
HH Savings Index SocExp Index
Source: 2007 Budget, SARB Quarterly Bulletin; Efficient Research
Summary Social grant beneficiaries doubled between 2003 to 2008 Child support recipients tripled between 2003 to 2008 Child Support grant age doubled from 7 (1998) to 15 (2008) Constant sharp rise as percentage of economy (%GDP) 2007: 11,9m recipients (26.0% of SA population)
Important social responsibility; however rising by alarming rate…!
Redistribution Estimation:R1 in = R? out
Rand In : Rand Out Ratio
1997 2003 2007
Family 1* (R20k) R4.29 R13.94 (225%) R15.62 (12%)
Family 2 (R43k) R1.36 R2.10 (54%) R3.22 (53%)
Family 3 (R100k) R0.30 R0.61 (100%) R0.87 (43%)
Family 4 (R300k) R0.80 R0.14 (87%) R0.21 (44%)
Family 5 (R500k) R0.04 R0.08 (81%) R0.11 (37%)
Family 6 (R1mil) R0.02 R0.03 (77%) R0.04 (24%)
*Average family consists of 4 people, aggregates taken per capita
Source: Efficient Research
Aiming For EqualityBefore & After (2007)
0
100
200
300
400
500
<20k <43k <100k <300k <500k
'000
Category
Source: Efficient Research
Aiming For EqualityBefore & After (2007)
0
100
200
300
400
500
<20k <43k <100k <300k <500k
'000
Category Effect
Source: Efficient Research
+224.0% -39.0%
Aiming For EqualityBefore and After (2007)
0
100
200
300
400
500
<20k <43k <100k <300k <500k
'000
Category Effect GDP per capita
19.9%closer
Source: Efficient Research
27.5% closer
From those who give….more will be taken
Thus..
• Higher taxes leads to lower savings
• Increase in Social Expenditure leads to Stronger Demand (inflation, Current Account, etc)
Accountability Spilling the Milk…?
Qualified Audit Opinions: Department 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01
Independent Complaints Directorate
✓
Land Affairs ✓ ✓
Transport ✓ ✓
Labour ✓ ✓ ✓
Justice ✓ ✓ ✓ ✓
Parliament ✓ ✓ ✓
Health ✓ ✓ ✓ ✓
Defense (R3.3bn 2008-2011) ✓ ✓ ✓ ✓
Correctional Services (R2.9bn 2008-2011)
✓ ✓ ✓ ✓ ✓
Water Affairs & Forestry ✓ ✓ ✓ ✓ ✓
Home Affairs ✓ ✓ ✓ ✓ ✓ ✓
General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06
Spending by DepartmentsDepartment Budget 2006/07
R mil
Audited
R mil
Under (-) / Over (+)
% of Budget
ICD 66 65 1 1.5%
Land Affairs 4,852 3,726 -1,126 -23.2%
Transport 12,870 13,360 490 3.8%
Labour 1,513 1,454 -59 -3.9%
Justice 6,270 6,005 -265 -4.2%
Parliament 782 755 -27 -3.5%
Health 11,270 11,338 68 0.6%
Defence 23,830 23,818 -12 -0.1%
Correctional Serv. 10,631 9,251 -1,380 -13.0%
WAF 4,477 4,306 -171 -3.8%
Home Affairs 2,800 2,547 -253 -9.0%
Source: 2007 MTBPS and Efficient Research calculations
Additional Facts
• All departments qualified in 2004-05 also received a qualified audit opinion in 2005-06
• 78% of all issues are in respect of only five departments, namely:• Correctional Services (21 issues )• Home Affairs (13 issues)• Defence (10 issues)• Independent Complaints Directorate (8 issues)• Water Affairs and Forestry (7 issues)
• Only four departments received clean audit reports – 12%– Public Enterprise– Public Services Commission– Presidency – Trade and Industry
Spilling the Beans…
Corruption: National Anti-Corruption Hotline
Number Received Feedback Percentage Feedback
1125 359 32%
Financial Disclosure: Senior Management Service Members
Number of members Number of forms outstanding
% Received
3619 1594 56%
National Departments
Source: 2007 State of the Public Service Report, PSC
Vacancies in National Departments
• Average Vacancy (National and Provincial):
• Senior Management Vacancies: 35%
2006 2005 2004
24.3% 23.4% 25.1%
Source: Skills Revolution Report, CDE Oct 2007
But what do(es) the people(s) say…?
Public Sentiment: State Service DeliveryDelivery Area 2006 2007 Change
Transparency and Accountability
67% 39% -28%
Reducing the Crime Rate 54% 33% -21%
Narrowing the Income Gap 65% 45% -20%
Fighting Corruption 63% 43% -20%
Retaining Skilled People 48% 28% -20%
Educational Needs 78% 65% -13%
Improving Basic Health Services
73% 64% -10%
Reducing Unemployment 40% 32% -8%
Welfare Payments 85% 80% -5%
Source: SA Reconciliation Barometer Survey Report Nov 2007, IJR
Public Confidence in InstitutionsInstitution 2006 2007 Change
National Government 73% 63% -10%
Political Parties 48% 37% -10%
Provincial Government 66% 57% -9%
Presidency 77% 68% -9%
Parliament 69% 62% -8%
Local Government 50% 43% -7%
Legal Systems 61% 55% -6%
Big Companies 65% 60% -6%
Constitutional Court 66% 61% -5%
Religious Institutions 70% 69% -1%
Source: SA Reconciliation Barometer Survey Report Nov 2007, IJR
Thus…
• Huge increase in Social Expenditure (social grants)
• International Comparison: • Spend more • Compare worse
• Financial management in a MESS!• People are losing confidence in
government
Funding
2007/08: Funding
R bn Budget ’07 Budget ’08 Expected Diff.
Extraordinary 1.2 1.8 1.1 -0.7
TB’s 5.7 5.8 5.6 -0.2
Bonds -9.0 -4.0 -9.9 -5.9
Foreign Loans -2.6 -3.5 -4.2 -0.7
Use of balances -5.7 -15.2 -8.3 6.9
Total Funding -10.7 -15.1 -15.8 -0.7
State’s Cash Coffer
Government Cash Balances (Exch. Acc)
0
10
20
30
40
50
60
70
80
90
100
110
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
R bn
Source: SARB
Budget Sustainability
Source: Fiscal Policy, 2007 MTBPS
Main Budget and Structural Budget Balances, 2000/01 – 2010/11
Summing Up: Fiscal 2007/08
Summary 2007/08
R bn Budget ’07 Budget ‘08 Expected Difference
Revenue 544.6 557.9 557.3 -0.6
Expenditure 533.9 542.1 539.0 -3.1
(Deficit)/Surplus 10.7 15.8 18.3 2.5
% of GDP 0.6% 1.0% 0.8%
Budget 2008 How Much can the Cash Cow be
Drained..?
2008 Budget Highlights:
Finance: 2007/08 fiscal year surplus of 1% of GDP 2008/09 surplus budgeted for is 0.8% of GDP Individuals: PIT brackets adjustment Primary rebate up to R8, 280 Interest on dividends to R19k (R27 for 65+) Capital gains tax exemption to R16k
2008 Budget Highlights:Companies: Corporate tax lowered to 28% Turnover-based tax package for SMEs <R1m Compulsory VAT registration from R1m STC to be replaced by dividend tax in 2009 (10%) Tax incentives for investments in SMEs by venture capital R5bn subsidies to support Industrial Policy
Other: R60bn allocated for Eskom’s capital financing Electricity levy introduced - 2c per kilowatt hour Exchange control abolished on institutional investors Companies, trusts, partnerships and banks allowed to participate
in the rand futures market on the JSE without restriction
Changes to Taxes
The Milk Machine…
New Personal Income Tax Table
2007/08 2008/09
Taxable Inc (R) Rates of Tax Taxable Inc (R) Rates of Tax
0 – 112 500 18% 0 – 122 000 18%
112 501 – 180 000 R20 250 + 25% 122 000 – 195 000 R21 960 + 25%
180 001 – 250 000 R37 125 + 30% 195 001 – 270 000 R40 210 + 30%
250 001 – 350 000 R58 125 + 35% 270 001 – 380 000 R62 710 + 35%
350 001 – 450 000 R93 125 + 38% 380 001 – 490 000 R101 210 + 38%
450 001 – R131 125 + 40% 490 001 - R143 010 + 40%
Rebates Rebates
Primary 7 740 Primary 8280
Tax Threshold Tax Threshold
Below 65 43 000 Below 65 46 000
Source: 2008 Budget
Effect of Adjustment
Income 2007/08 Tax 2008/09 Tax Difference
R100k R10 260 R9 720 R540 (5.3%)
R150k R21 885 R20 680 R1 205 (5.5%)
R200k R35 385 R33 430 R1 955 (5.5%)
R300k R67 885 R64 930 R2 955 (4.4%)
R400k R104 385 R100 530 R3 855 (3.7%)
R500k R143 385 R138 730 R4 655 (3.2%)
Source: 2008 Budget
Income Tax: Companies
Type Tax Rate Possible changes
Companies 29% Down 1% - 28%
Small Business Corporations (SMEs)
R0 – R43 000 (46 000) 0% Bracket adjustment
(threshold to R46k)
R43 001 – R300 000 10% Bracket adjustment (unchanged)
R300 001 & above 29% Large Bracket adjustment? (28%)
Employment Companies 34% Lower – (33%)
STC to Dividend base 10% (1 Oct 07) More clarity on dividend tax (unchanged @ 10%)
Source: 2008 Budget and Efficient Research
State of the Nation
• Education: “Kha Ri Gude”
Mass literacy campaign 300 000 people, 4.7 million 2012 – R3bn
Schools 1 000 new schools to be build – R100m 3 000 + new jobs created
• Job Creation:Military
Program for Military Skills - Up new enrollments from 4 000 to 10 000 R700m already committed
EPWP More than R1 bn for new programmes
Land Reform Funds allocated to Agricultural Credit Scheme (Mafisa) Greater support for new farmers
• Social Grants Equalising age for old age pension – men to 60 yrs, 500 000, R5.7bn (26%
of pop.)
In line with Apex priorities…
But What About ?
• R300bn Capital Expenditure (R60bn, R20bn 2008/09)
• Credit ratings
• Future Privatisation
• Electricity levy – 2c per kw hour
Other: Individuals
Individual offshore – R500k + R2m Transfer duties - threshold higher (R500k) (R500k) Estate duty – 20% flat rate on all property of residents and SA property
of non-residents Donations tax
• Of property, donated exempt R200k (R100k) (unchanged – R100k) Further adjustments on deductions for medical aid contributions
• First dependant R550 (R530) (R570)• Additional dependant R350 (R320) (R345)
Sin taxes to be upped (as usual) – Beer 5c, Cigarettes 66c Fuel levy – up 5 cent – 6c (2 April 08) RAF – up 5 cent (5c) Electricity levy – 2c per kilowatt hour
Other: Businesses
STC replaced by dividend tax (‘2nd Phase’) – rate of 10% in 2009
Pension funds will be exempt from dividend tax
VAT changes for SMEs
• SMME’s <R1mill: “Presumptive turnover tax” as alternative to income tax and VAT
• Farmers submitting tax returns every 6 months - raised to R1.5bn
• Businesses submitting tax returns every 4 months - raised to R1.5bn
• VAT registration threshold: R1mil (R300k)
Presumptive Turnover Tax (SMEs)
Turnover Rate
0 – R100 000 0%
R100 001 – R300 000 2% on each R1 above R100k
R300 001 – R500 000 R4 000 + 4%
R500 001 – R750 000 R12 000 + 5.5%
R750 001 – R1m R25 750 + 7.5%
Additional Company Tax Proposals
• “Closely held passive companies” taxed at 40% (28%) - Definition to be clarified
• Retirement funds exempt from new dividend tax replacement for STC on companies
Environmental Structures
R2bn set aside for efficient use of electricity, generation from renewable sources, installation of electricity-saving devices and co-generation projects
Tax relief given to private conservation by private land users Urban Development Zone incentive extended to 2014.
Exchange Control
• Scrapped on institutional investors• System of prudential regulation (SARB)• Foreign exposure limit (interim measures)
• Pension Funds & Long-term Insurer’s underwritten policies – 20% of retail assets
• Collective investment schemes, investment managers and investment business of long term insurers – 30% of retail assets
• Rand futures market on JSE – companies, trusts, partnerships and banks participate without restriction
• Further work will be done on lowering bank’s exchange control restrictions
Taxes: A Wish List
Tax Category Wish
PIT (Mid/high income) Lower
Company tax Lower ✓
STC Lower/Scrap
VAT Higher
Transfer duty Abolish
Customs Duties Lower/Scrap
Small comp. VAT returns Lower frequency/Higher threshold ✓
Flat tax rate 22%
Expenditure
The Milky Way…
Expenditure Trends 2009 – Election Year! Social Spending Sssspree More for Education and Health (R33.2bn) Service delivery to get more and more (and do less
and less) (R6.5bn) Capital spending
World Cup (R2bn) Housing (R6bn)
Let’s hope; safety and security - World Cup
Higher revenue helps spending higher – danger!!
Summary 2008/09
Budget ’08 Efficient Difference
Revenue 625.4 615.4 -10.0
Expenditure 611.1 605.9 -5.2
Deficit/Surplus 14.3 9.5 -4.0
% of GDP 0.8% 0.4%
The William Webb Ellis is still in SA
(*Soon to be joined by FIFA World Cup trophy)
Some Good News…
www.efgroup.co.za
