Comments on the Medium Term Budget Policy Statement 2015

Comments and snippets from Grant Thornton on SA Medium Term Budget Policy Statement 2015

Presented By Finance Minister Nhlanhla Nene

At 14h00 on 21 October 2015


“We applaud the Minister for delivering the Medium Term Budget Policy Statement this afternoon so smoothly, after an interrupted start.”

Andrew Hannington, CEO, Grant Thornton Johannesburg

“Finance Minister Nhlanhla Nene gave a very honest and balanced account of the state of our country’s finances this afternoon.”

Andrew Hannington, CEO, Grant Thornton Johannesburg

“Demands on the expenses side mentioned by the Minister today continue unabated.  Issues such as education, security, power, house, water and pensions will all need funding which is deeply concerning.”

Andrew Hannington, CEO, Grant Thornton Johannesburg

“We welcome the stream lining of public procurement; the review of university funding; the Tightening of tax collections including base erosion initiatives because we do not need tax evasion); the various cost containment measures; initiatives to partner with the private sector to deliver services at municipal level; no immediate increase in taxes; and improved confidence and promotion in broad-based development.”

Andrew Hannington, CEO, Grant Thornton Johannesburg

On Fees and Education issues

“Given the dramatic start at the beginning of this afternoon’s Medium Term Budget Policy Statement, I must admit that it is quite concerning to see nothing much at all about the students and fees issue in today’s speech.  Sadly there only seems to be a paragraph dedicated to the issue of education and fees and I just don’t think that this is going to be sufficient. This is disappointing and very concerning.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

“In the Minister’s defence though, what we do get from today’s speech is that there are a lot more issues in the country than just education which thus makes it very difficult to just prioritise one matter.  It is important for the budget to address a whole host of things.  I still do believe though, that the fees and education matter should have warranted more attention.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says. 

Increases in taxes to come

“On more than one occasion, Minister Nhlanhla Nene mentioned that ‘without economic growth, revenue will not increase and without revenue, expenditure cannot increase’.  As far as economic growth is concerned, it is clear that there are a number of challenges which the Minister recognised as ‘structural constraints in the economy’.  National Treasury is only projecting 1.5% growth this year and this will sadly only increase to growth of 1.7% next year.  Today’s MTBPS shows no assurance as to how we can turn this issue around. Minister Nene hasn’t specifically indicated why growth can’t be higher other than that the world economy is battling.  He is basically saying that increased revenue is needed and that measures are now needed to create this revenue growth. I find this to be quite concerning and it is very difficult to see a solution for South Africa other than to increase taxes.  So over and above the increases in taxes which have started coming through this year, we will probably see more tax increases coming through next year.  Whatever they are, I cannot speculate right now, but one thing is for sure there will be increased taxes.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

On countering corporate profit shifting and base erosion

“As a firm, Grant Thornton welcomes Minister Nene’s announcement that the nation is committed to counter corporate profit shifting and base erosion and also that the nation has already committed to automatic exchange of financial information for tax purposes.  This afternoon the Minister stated that ‘the first exchange of information took place last month’.  His statement this afternoon is unclear if it was actually South Africa that participated in this exchange but what is very clear is that these measures are actively being put into practice.  We are pleased that South Africa is one of 90 countries committed to this process which, by the end of 2018 our nation will have to commit to exchanging information.  This, in my opinion, is just one of the measures which National Treasury will be utilising as an alternative avenue to address the country’s revenue shortfall.  Increased compliance on base erosion regulations (BEPS) and wealth taxes will certainly – if not come through in new legislation early next year – it will absolutely be a hot topic to look at very soon thereafter.  We urge our clients and other tax payers in South Africa that if you haven’t disclosed your foreign assets already, you are at a serious risk of being found out.  It is vital for our people to plan around this now.” 

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

“We thought that the Minister might allude to a new amnesty for the disclosure of foreign assets this afternoon – but it looks like Government will just be actively pursuing the global exchange of information and BEPS process, while continuing to proceed with proposals for an additional wealth tax instead.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

On Carbon Tax

“Carbon taxes are most certainly on the cards.  The Minister mentioned this afternoon that a draft bill on Carbon Tax will be published soon, which will provide people with further opportunity to debate.  This is yet another measure to create revenue.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

On Cost Cutting

“During the February National Budget Speech, Treasury committed to cutting costs.  The Ministry mentioned that they were just waiting for the outcome of public sector wage settlements to come through.  But now we note that the settlement for salary adjustments were announced for this year at an increase of 10.1% and that going forward over the next two years the salary increases will be at least two percentage points higher than CPI in terms of Public Sector wages.  This really concerns me because it means that there is no chance to save. I would be interested to know what the net impact of the salary costs vs cutting costs and savings really is. In my mind it seems that Treasury is cutting costs just to fund salaries.  If you’re just shifting funds around, you’re not cutting costs. Where is the money going to come from for things like addressing education and fees?”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

“The emphasis given to curtailment of non-essential expenditure and greater financial discipline which the Minister mentioned this afternoon were to be expected.  But it is encouraging to know that this is being backed up by reforms in procurement and supply chain management procedures.  In addition, more effective governance was also announced and legislation to regulate state-owned enterprises is currently under consideration. Legislation and regulation measures are essential to ensure that the proposals by the Davis Tax Committee, if implemented, are allowed to achieve their intended objectives.  One of the core themes of the Davis Tax Committee focuses on the reduction in inequality prevailing in the country and it is essential that the additional taxes which the Committee is hoping to collect are channelled in the right direction rather than being poured down bottomless black holes such as the propping up of poorly managed utilities or for the support of corrupt practices.”

Mike Betts, Partner: Tax, Grant Thornton Cape

On non-performing State-Owned Entities

“The Minister mentioned this afternoon that state-owned entities which are not performing as they should must not get the same funding and support as those that are performing well.  I’m concerned that there is no apparent plan at this stage to address this and that this debate could continue for some time to come.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says

“What is very encouraging is that we are really starting to see Treasury acting on their commitment to raise funds through the sale of the non-core assets.  It is great that the Minister mentioned part of Eskom’s payments will come from the sale of Government’s stake in Vodacom.  In addition,   South Africa’s contribution to the BRICS New Development Bank will also be funded out of the sale of Vodacom’s stake.  It is very encouraging that Government is acting on that undertaking to source funding from non-core assets.”

Eugene du Plessis, Partner and Head of Tax, Grant Thornton Johannesburg says.

“It was encouraging to see that South Africa’s initial contribution to the New Development Bank formed by the BRICS region of countries will be funded from the proceeds derived from state-owned assets – such as the sale of the Government’s stake in Vodacom - rather than via funds collected from taxpayers.’’

Mike Betts, Partner: Tax, Grant Thornton Cape


Notes to editors

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