Where is the Good News?

After a tough year in 2016 with returns “across the board” well below average it is easy to focus on the negative news, but there are actually a few areas of “good news”.

of South Africa. Current estimates are that maize production will be up vs. 2016 by as much as 40% in 2017 vs 2016 which will ease food price inflation (and reduce the need for imports).
South Africa is also exporting more, largely because commodity prices have recovered by about 25% in Dollar terms – this is probably the biggest contributing factor to the strength of the Rand in 2016. This has helped reduce the current account deficit (difference between exports and imports) significantly.
It certainly appears as if inflation has peaked and will begin to fall back in line with the “target” range of 3%-6% barring any major shocks to the system. This in turn means that it is unlikely that we will see further interest rate increases in South Africa in 2017 unless interest rates elsewhere (in America particularly) rise much faster than anticipated.
For the first time in several years the forecasts for global growth are beginning to increase. I personally don’t place too much trust in economic forecasts, but if true then this will be positive for South Africa too.

What about Trump?
For many around the world, the election of Donald Trump as American President came as a huge surprise. I suspect the real reason this came as a surprise is that every day we are exposed to “liberal” media presenting Trump as an idiot.
The reality in America is that business confidence since his election has risen significantly because of his promises to:

  • Cut taxes
  • Cut regulation (finance and energy sectors)
  • Increase trade protection for USA (make sure trade agreements are “fair”)
  • Increased infrastructure spending (USA has roads/dams etc which are very old)

The risk however remains that Donald Trump may not be able to implement due to his political inexperience or worse still that he may do something really stupid especially if he is backed into a corner.

Normally the job of the Finance Minister is a tough one when it come to the budget and balancing planned spending with expenditure, but yesterday the task was even more difficult.
Revenue collection in 2016 was well below target and if he did not address this then SA would face a certain Credit Rating downgrade (less likely that we will repay debt).
The most effective way to increase revenue would have been to raise VAT but this would have been political suicide (unpopular with majority of voters and the President could have had an excuse to fire the FM).
Because of the tough conditions there was very little “relief” in the form of tax bracket adjustments. The main tax implications are as follows:

  • 45% marginal tax rate for people with taxable income greater than R1,5million
  • 45% tax rate also applies to Trust income
  • Dividend withholding tax increased to 20%
  • Annual limit on contributions to tax-free savings increased from R30k to R33k
  • No change to Capital Gains tax inclusion rate (40% for individuals and 80% for Trusts) or annual exclusion (R40,000 for individuals)
  • No change in interest income exclusion (R23,800 for individuals)
  • Small increase in Medical Tax Credits
  • Increased fuel levy and “sin taxes” (cigarettes and alcohol)

Tax Thresholds (below which no tax due)

  • R75,750 Taxpayers younger than 65
  • R117,300: Taxpayers aged 65 – 75
  • R131,150 : Taxpayers older than 75

The budget speech was a sobering reminder that we are going through tough times locally. Remember though that the “market” tends to look ahead at future earnings rather than the low growth and problems in the current year. Any improvement in the global economy can quickly result in a massive turnaround of fortunes – the key is to just remain patient.

“The Market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient” – Warren Buffet

Posted by reich_admin

Leave a Reply