SA faces rating downgrades if fiscal targets not achieved – Gordhan

Finance Minister Gordhan announced a new tax bracket for super-earners as well as increases in the fuel tax and excise duties for tobacco and alcohol.

Finance Minister Pravin Gordhan at the 2017 Budget media briefing in Cape Town on 22 February 2017. Picture: GCIS.

JOHANNESBURG - Finance Minister Pravin Gordhan has used his 2017 Budget Speech to warn that South Africa faces credit ratings downgrades and an outflow of capital if it fails to achieve its fiscal targets.

Gordhan delivered his speech in Parliament on Wednesday afternoon, announcing a new tax bracket for super-earners as well as increases in the fuel tax and excise duties for tobacco and alcohol.

He’s forecasted slightly improved economic growth in the years to come.

“Our expectation at this stage is that GDP growth will increase from 0.5% in the past year to 1.3% in 2017. We will continue to improve very moderately over the medium term.”

Ratings agencies S&P and Fitch currently rate the country one level above junk status and Moody’s two notches above.

Gordhan told the House that this was a strong budget.

“Our financial situation is constrained but we have still produced a credible budget and there’s lots of money in the system that we could use better.”

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VAT CONSIDERED ANOTHER SOURCE OF INCOME

The Finance Minister says South Africa’s narrow tax base is the reason that Treasury is going to hike tax for super-earners but VAT is being considered as another source of revenue.

Gordhan announced that those earning more than R1.5-million would pay 45% tax.

The minister says new VAT rates are being considered as well.

“The VAT is on the table and is being looked at by the Davis Tax Committee. In fact, the secretary general of the ANC said let us look at VAT as a source of revenue as well.”

He says various options are on the table.

“This budget begins to get a conversation going amongst us, so should we increase it by 2%, 4% or 1%? What will the new list of exemptions look like? Should we actually have a dual system?”

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(Edited by Winnie Theletsane)