A one percentage point rise in VAT, no real personal tax relief, higher sin taxes and a large fuel levy were among the measures announced by Finance Minister Malusi Gigaba in Parliament on Wednesday.
Gigaba delivered his first national Budget speech before the National Assembly this afternoon, calling Treasury’s opus “a tough, but hopeful budget”.
“Budget 2018 charts a path out of economic stagnation,” he said.
The Budget raises taxes in the hopes of collecting an extra R36 billion in revenue. It also slashes government spending by R85 million, cutting down the scope of several large infrastructure projects, including some relating to basic education and healthcare.
The Budget seeks to reignite stubbornly stagnant economic growth, and projects a slow but steady increase in GDP over the next three years.
Let’s take a look at some of the key points in #Budget2018:
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Gigaba announced a one percentage point hike in the VAT rate, to 15%. That means, with the exception of 19 zero-rated items, everything we buy will become that bit more expensive.
Increasing the VAT rate has been mooted for some years, but has been fiercely resisted by unions, and pro-poor activists.
However, government figures suggest that 80% of the effect of the hike in the VAT rate will be shouldered by higher income earners.
The hike in the rate will raise enough money to partially pay for fee-free tertiary education for lower-income students.
This is the first increase in the VAT rate since the tax was introduced in 1994. Gigaba told a pre-budget briefing that this will not be the first of many such hikes, saying instead that shortfalls will be made up through a variety of interventions, including the sale of some assets held in government’s property portfolio.
There is little by way of personal income tax relief in the Budget. The top four tax brackets remain unchanged, meaning higher income earners will be paying more of their salaries to government in real terms.
Treasury has also cut back on medical aid related tax breaks, with below inflation increases in medical tax credits. That means in real terms people with private medical aids will pay more for them.
The money government will save on those tax credits will go towards funding the National Health Insurance project, which will get underway this year.
As expected, those with vices that extend to tobacco and alcohol will have to pay more to indulge. As of 1 April this year, smokers will pay R1.22 more for a pack of twenty cigarettes, a 750ml bottle of wine will cost you 22.5 cents more, and the price of a can of beer or cider will increase by 14c. The only form of alcoholic beverage that remains stable is traditional beer.
This year there’s an extra sin added to the bag, with the announcement that the much-debated sugar tax will be imposed in April this year. Dubbed the “Health Promotion Levy”, it aims to encourage healthier choices among South Africans, by taxing sugary drinks.
The budget allocates R1.01 trillion to Social Services, with Education getting the lion’s share of R351.1 billion.
The allocation to Social Development spending rises to just over R259 billion, allowing for an increase in Old Age, Disability and Care Dependency grants from R1,600 to R1,690 a month, with a further increase R10 set to kick in on 1 October. The Child Support Grant will also increase as of 1 April, from R380 to R400 a month, with a further R10 increase in October. It’s hoped these increases will mitigate the negative effects of the increase in the VAT rate.
Health spending rises to just over R205 billion with the spending focus on district health services. This ties into government’s goal of increasing life expectancy to 70 by the year 2030.
Community development projects get R196.3 billion with an allocation for public transport spending totalling R38.6 billion.
Education allocations are further raised by government’s commitment to free tertiary education.
The Budget allocates R57 billion in the medium term to fund free fees, starting this year with first-year tertiary students.
This marks the single largest reallocation of resources towards government’s spending priorities.
All first-year students with a family income of below R350,000 per year will be funded for the full cost of study at universities and TVET colleges. Returning students who receive loans from the NSFAS will have those loans converted into bursaries.
“This is an important step forward in breaking the cycle of poverty and confronting youth unemployment, as labour statistics show that unemployment is lowest for tertiary graduates,” Gigaba said.
The expense will partly be funded by revenue raised from the increase in VAT.
South Africa’s economy has struggled to grow in recent years, lagging well behind the growth rates of similar economies both in the sub-Saharan African region, and the rest of the world.
Treasury has revised the expected growth rate for 2017 up to 1%, from the 0.7% forecast in the MTBPS last October, and the Finance Minister sees GDP growth increasing to 1.5% in 2018, rising to 2.1% in 2020.
“While this is a good start, there are immediate policy interventions that we need to make to ensure that we create the right environment for investment, growth and employment,” he said.
Among those interventions is a drive to provide funding for small businesses. It will be allocated R2.1 billion, and will be a joint project by the Department of Small Business Affairs, the Department of Science and Technology, and the National Treasury.
Gigaba also referenced the need to ignite the township economy, calling on those working in the urban development space to rethink their approach, and find ways to foster higher-value enterprises within the nation’s townships.
“We need to see factories, workshops, tech hubs and locally owned retail operations being established in our townships,” he told MPs.
Inclusivity of economic growth was also a big theme in this year’s budget, with Gigaba confirming the Public Procurement Bill will come before Cabinet in March this year.
“It will further enable government to use public procurement strategically to advance transformation, achieve efficiencies and improve governance.”
The Finance minister also announced a R6 billion allocation aimed at helping drought-ravaged provinces deal with the effects of the prolonged dry-spell.
Gigaba says government is particularly concerned about the potential for job losses in the agricultural sector, as a result of the drought.
“We are therefore exploring the option of partially mitigating the losses by temporarily increasing intake in the Working for Water programme.”
In his speech, Gigaba pointed to the need to conserve water, saying South Africa has among the highest levels of per capita daily domestic water consumption levels in the world.
The Minister reinforced the message delivered by president Cyril Ramaphosa in his State of the Nation Address, that state-owned enterprises cannot continue to lean on the national fiscus for bail-outs.
However, this year, there are still likely to be state-entity-related drains on the fiscus.
“In the coming year, government may be required to provide financial support to several SOCs which could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections,” Gigaba said.
Speaking during a pre-budget briefing, the minister confirmed there are ongoing discussions around the recapitalization of SAA, SA Express and Denel, but he stressed any recapitalization undertaken will be done in a “budget neutral” way.
He also revealed the board of Denel will be the next in line for a shake-up, saying it’s expected the arms company will have a new board in “a short space of time”
Gigaba says matters will move swiftly, as soon as Ramaphosa takes full control of the SOC Co-ordinating Council.
This article first appeared on EWN : #Budget2018: Everything you need to know