Finance Minister, Pravin Gordhan, announced at the Budget Speech on the 22nd of February that despite a constrained economic climate, with slow albeit steady growth forecast for the remainder of the year, the outlook is largely positive.
Current Economic Climate:
Bold decisions were proposed that aim to reduce the country’s shortfall and strengthen public finances; addressing underwhelming economic growth, rising unemployment levels and financial strain in both households and businesses. Gordhan (2017) Gordhan hopes that the proposed budget will redress the inequalities of the past by prioritising the redistribution of wealth to education, health and municipal services in rural and poverty-stricken areas.
Furtherance of a more diversified economy will have a positive, long-term effect on the country as a whole. Most notably, an increase in the number of qualified and skilled labourers entering the job market, accessible and adequate health care and education, and cleaner, more hygienic living conditions. According to Gordhan: “We need a commitment to deliver, focused on the triple challenges of poverty, unemployment and inequality.” Sustainable change is possible when the nation as a whole commits to and participates in overcoming challenges that prohibit the achievement of long-lasting transformation.
South Africa as an Investment Prospect:
National economic growth is forecast to climb steadily on the back of improved drought conditions, an increase in electricity supply and demand, a recovering Rand and fewer industrial dispute disruptions. Advancing international investment and development potential in South Africa has moved to the forefront as consumer confidence climbs, with mobilisation the operative word. Gordhan stated in his speech that “consistent, transparent governance” is necessary; one in which government is held accountable for reducing and stabilising debt, as well as curbing public expenditure.
This will “ensure public funds are used for their intended purposes” and make visible progress in financial management. Government will continue to implement initiatives that increase the attractiveness of South Africa as a tourist destination and investment prospect, as well as enterprise and entrepreneurial development, fostering job creation and economic growth. However, it is now more critical than even that households and businesses tighten their belts in the management of income and expenses; a notable discipline that Gordhan proposes be extended to balancing public expenditure. Government and citizens will need to prioritise their spending to alleviate pressure and prepare for the unexpected.
Due to a R30 billion revenue shortfall, tax proposals will aim to raise ±R28 billion in the coming year, with the main proposals being a new top personal income tax rate, increases in the fuel and road accident fund levies, sin tax and tax-free threshold, among others. Most remarkably for the real estate industry, Gordhan announced that the threshold above which Transfer Duty on property transactions is paid will increase a further R250 000, to R900 000.
This is a welcome relief to first-time buyers and those looking to downscale! The new threshold will enable buyers to put down a larger deposit - strengthening their buying power - or use the money towards other home-buying costs or debt settlement. Lower monthly home loan instalments will also increase disposable income. Additionally, no VAT, personal tax or Capital Gains Tax rate increases will positively impact prospective investment.
The Budget, though challenging, will significantly transform the economic climate if implemented as envisaged. Gordhan’s focus on prioritising spending, job creation, supporting tourism, facilitating enterprise opportunities and infrastructure development is invaluable to the recovery and sustainability of the South African economy. As mentioned above, sustainable change is only possible when government and citizens commit to and participate in overcoming the challenges that prohibit the achievement of long-lasting economic growth.