Gordhan’s 2012 budget conundrums

HOLIDAYS. Sitting on the boat waiting for a fish to bite is a good time to ponder what was on Finance Minister Pravin Gordhan’s mind over the festive season. What will he call on Budget Day, February 22 2012?

There is so much more at stake than just the Christmas VAT and sin tax collections. Even if VAT undershoots the target by R13-billion, it will be no big calamity. That’s the least of the worries. The increased personal tax collections on above-inflation earnings increases for 2011 should compensate.

The implementation of dividends tax on April 1 2012 will cost the fiscus around R10-billion. And the peachy transfer duty receipts from 2005 to 2008 have declined substantially. Even still, these losses could be added to the national deficit. Nobody would blink an eye.

The big problems PG must be facing are, firstly, how they are going to fund the long-promised national health system. That’s a R100-billion challenge. And taking away medical aid tax benefits from a million or so South Africans won’t fund even 10% of that. Secondly, how can the JZ administration accelerate delivery with the world economy in tatters? JZ and PG must now know that the underprivileged are sick of waiting. But where’s the money?

Personal tax may compensate for a shortfall in VAT. But no more can be expected from company tax. The rest can be raided for the odd billion. But no more.

Carbon emission tax legislation still has to go through the parliamentary process. That will take two more years. So PG is left with two targets: fuel and electricity levies. The electricity levy is currently collecting R6-billion. At a carbon emission tax level of R165 a ton, it would yield R36-billion. Brace yourself.

The tax component of fuel used to run on a benchmark of 35% of the price at the pump. The Treasury has let that decline to 22%, and limited the annual increase to below 25c a litre. Brace yourself again.

But even this can only work if there is an orderly resolution of the European crisis. And PG must be thinking, “Trevor Manuel had it easy when the world was run by Bush, Blair and Greenspan. But with Obama, Cameron and Bernanke, not even Little Red Riding Hood is going to believe that recovery is in sight.”

Originally published in the Sunday Times Tax Talk column.

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  1. Is estate duty worth the trouble? – Unemployment over 35% and increasing daily – Death Duties destroys small to medium business resulting in Lost Jobs , less taxpayers and a smaller tax base for SARS. All taxpayers should play by the same rules. Economic Apartheid Death Taxes should be paid or abolished for all.

    The honourable minister Pravin Gordham said in his budget two years ago – ” Estate duty raises limited revenue and is cumbersome to administer. Moreover, its efficacy is questionable; many wealthy individuals escape estate duty liability through trusts and other means. Taxes upon death will be reviewed. Both Estate duty and capital gains tax are payable upon death, which is perceived as giving rise to double taxation.

    The minister is 100% correct and it should be the politically correct move to remove death duties for everyone. Why should the super wealthy be able to avoid estate duty via Generation skipping trusts and many other loopholes only available to the Super Wealthy via expensive tax lawyers. Why should a small business owner and the middle class have to pay death duties when the super wealthy do not pay death duties. This is economic apartheid.
    In 2009 Unemployment was over 25% – today its over 35% and increasing – Who is going to create jobs in South Africa – We are going to go the same way as Zimbabwe unless we do something now.
    R3.5m exemption ($400,000 dollars) is small by World Standards.
    Who is going to create jobs in South Africa – Entrepreneurs and small business owners create jobs – 80% of small business fail and the 20% that succeed are killed by needing cash to pay South Africa Death Duties when the original owner or one of the brothers of the family business dies.
    Entrepreneurs are a rare breed of smart risk takers – Many of South Africa’s entrepreneurs are and were attracted to Canada, Australia, USA, New Zealand, Hong Kong and many other countries were there are NO DEATH DUTIES or the the Threshold is very high.
    These countries have very low rates of Unemployment and therefore more taxpayers and a larger tax base for Govt from allowing successful small business to grow and grow and grow and employ more people.
    Please tell me how you suggest we solve Unemployment when there is No Incentive for entrepreneurs to build up a business, own the property of the business, buy an investment property and be able to retire and then leave the business to his brothers or kids who can continue to grow the business. At the moment there is a penalty for success and dying with over $400,000 dollars unless you are Super Wealthy and can afford expensive tax lawyers. The Super Wealthy can die and pay NO DEATH DUTIES thanks to generation skipping trusts etc…

    The minister is correct in wanting to eliminate death duties for small and medium business ( the super wealthy do not pay death duties ) – Imagine Unemployment reversing – Imagine small business succeeding and getting bigger and bigger and employing more people and when original owner dies business continues to grow and grow and grow with his kids and there kids in the business.
    The Tax base for SARS and GOVT Income will increase as there will be more taxpayers, the tax base from business will increase as the business can grow and grow and not have to fear Death Duties. Tax accountants and tax lawyers will have more work as there will be more taxpayers and more business that need there services.
    Capital and Cash can be put back into the business which will be in South Africa and not Overseas. There should be a level playing field for all taxpayers.
    We need to give incentives for the small 20% of successful owners who are creating jobs and not a penalty for dying a successful creator of jobs – at the moment smart entrepreneurs are being lost to Overseas Countries. We need seeds (entrepreneurs) to grow crops (jobs). If we send the seeds (entrepreneurs) Overseas those Countries will get the jobs
    We need to attract entrepreneurs and seeds from Overseas who will bring money and skills and create jobs in South Africa and grow the Govt tax base – At the moment DEATH TAX DUTIES are destroying jobs and are unfair as only the small business and middle class pay them – All taxpayers should play by the same rules. Economic Apartheid Death Taxes should be paid or abolished for all

    Comment by Johnwilliams — 2 February 2012 @ 8:17 am

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