Business

South Africa budget targets top earners

Pravin Gordhan Image copyright Reuters
Image caption Pravin Gordhan became South Africa's finance minister in December 2015

South Africa finance minister Pravin Gordhan has announced a new top tax bracket of 45% in his 2017 budget.

The new tax bracket, the previous one was 41%, applies to annual incomes of more than 1.5m rand ($114,000, £91,000) and will hit around 100,000 people.

Mr Gordhan is battling weak tax receipts which, during the current financial year have been 30bn rand ($2.3bn, £1.8bn) less than expected.

He added that government debt had risen to 2.2 trillion rand ($168bn, £135bn).

The shortfall in tax revenue was the largest since 2009-10, with the biggest gap coming in personal income tax, which brought in 15.2 billion rand ($1.1bn, £929m) less than expected.

The problem was flagged in a mini-budget in October but grew by more than a third from the projected figure at the time.

To counter that, Mr Gordhan revealed a package which should produce a swing of 38 billion rand ($2.9bn, £2.3bn).

More than two-thirds will come from the tax increase, which also includes a rise in dividend withholding tax, with the rest from reduced spending.

Analysis by Matthew Davies, Africa Business Report Editor

The big question analysts will now ask is, has Pravin Gordhan done enough to stave off a downgrade from the ratings agencies?

The likes of Moody's and Standard & Poor's, which pronounce on South Africa's sovereign debt in April and June, were watching closely.

The finance minister said the economy would grow by 1.3% this year, which, by his own admission, is not good enough.

He said the deficit would be 3.1% of GDP, but that would fall in subsequent years. But the question remains...will the deficit fall fast enough and will economic growth pick up?

The future is, however, uncertain. With an increasingly combative political climate within the ruling ANC, analysts say that if he does lose his job in a widely-predicted cabinet reshuffle, this budget and some of its prudent measures, will completely unravel.

And that, it's thought, will seal the deal for a series of credit downgrades and the accompanying market turmoil.

Mr Gordhan also warned of "growing impatience and ferment" over post-apartheid inequality and said: "Economic growth is slow, unemployment is far too high and many businesses and families are under stress.

"The relationships between labour and capital, rich and poor, black and white still reflect the entrenched legacy of colonialism and apartheid."

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