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Budget in a nutshell: New hope amid VAT and other tax hikes

Budget in a nutshell: New hope amid VAT and other tax hikes

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Picture: Sourced.Finance Minister Malusi Gigaba
Cape Town – Building on the sense of a new beginning created by President Cyril Ramaphosa’s State of the Nation Address on Friday, Finance Minister Malusi Gigaba’s Budget Speech on Wednesday in the National Assembly was all about rebuilding and restoring amid challenging times.“This is a tough but hopeful budget”, he said at the start of his speech. This is probably a fair comment seeing that the risks and pressures were also acknowledged.

He noted that the outlook and economic indicators improved since the Medium-term Budget Policy Statement in October, which painted quite a gloomy picture.

The main element of today’s Budget is the rise in the VAT rate for the first time since 1993, from 14% tot 15%. Gigaba said the rate is still low compared to some of South Africa’s peers.

In total an additional R36bn of tax will be generated this year, with a limited income tax bracket adjustment for inflation and other measures. Richer people will pay quite a bit more estate duty.

On the spending side fiscal consolidation will continue with expenditure reductions of R85bn over the next three years.

The allocation for phased in fee-free higher education amounts to R57bn over the next three years, of which R12.4bn will go towards needy first year students in 2018/19.

New first year students with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study.

The contingency reserve will also be strengthened with a provisional allocations of R6bn set aside in 2018/19 (R10bn over three years) for among others things, drought relief and augmenting public infrastructure.

Social grants were increased by around 7% on average.

Gigaba also stressed bringing down debt levels and significantly said: “We dare not borrow irresponsibly, leaving it to future generations to repay.” The consolidated budget deficit is projected to narrow from 4.3% of GDP in 2017/18 tot 3.5% in 2020/21.

In all, one can agree that the budget is probably a balanced and responsible one under the circumstances, which can put the South African fiscal position on a healthy path again.

The highlights of the Budget Speech are:

Macro-economic outlook:

• GDP growth of 1% is expected for 2017, up from 0.7% projected in October. Growth of 1.5% is forecast for 2018 and according to Treasury will reach 2.1% by 2020.

• The economy has benefited from strong growth in agriculture, higher commodity prices and, in recent months, an upturn in investor sentiment.

• The global economic recovery provides a supportive environment for South Africa to expand trade and investment and the Government will implement structural reforms to promote investement by reducing policy uncertainty, promote good governance and sound financial practices at state-owned companies, the Review states.

• Export growth is expected to grow by 3.8.% in 2018, 3.4% in 2019 and 3.5% in 2020, after estimated negative growth in 2016 and an estimated 1.5% last year.

• Consumer Inflation, after reaching 6.3% in 2016, is expected to decline to between 5.3% and 5.5% in the years 2017 tot 2020.

• The current account deficit, after reaching 4.4% in 2015, will come down to an estimated 2.3% in 2018, 2.7% in 2019 and 3.2% in 2020.

• Gross fixed-capital formation continued to decline in 2017 and unemployment reached the highest level recorded since 2003, the review states.

Budget Framework:

• The budget deficit (consolidated) crept up to 4.3% of GDP in 2017/18 (3.1% budgeted last February). This was due to less revenue collected than expected (R48.2bn against R50.8bn still estimated in Octobers MTBPS). The deficit is expected to narrow to 3.5% in 2020/21.

• Net state debt is still creeping up, but expected to stabilise at 53.2% of GDP in 2023/24. It is the first time that it this estimate exceeds 50%.

• The main budget non-interest expenditure is projected to remain stable at 26.6% of GDP between 2017/18 and 2020/21.

• An additional R36bn (R28bn last year) of tax revenue will be raised by proposed measures in 2018/19.

• The fiscal framework reflects two major changes that followed Octobers MTBPS: medium-term expenditure cuts identified by a Cabinet subcommitte amounting tot R85 billion, and an additional allocation of R57bn for fee-free higher education and training.

• Contingency reserves have been revised upwards to R26bn over the next three years.

• Real growth in non-interest spending will average 1.8% over the next three years. Post-school education and training is the fastest-growing category.

Specific spending programs over the next three years:

Over the next three years, government will spend:

• R528.4bn (R490bn last year) on social grants.

• In total R324bn is provided for higher education and training, including R57bn of new allocations for fee-free higher education and training.

• R792bn (R707.4bn) on basic education, including R35bn for infrastructure, and R15.3bn for learner and teacher support materials, including ICT.

• R123.3bn (R114bn) on subsidised public housing.

• R125.8bn (R94.4bn) on water infrastructure and services.

• R207.4bbn (R189bn) on transfers of the local government equitable share to provide basic services to poor households.

• R667bn (R606bn last year) on health, with R66.4bn (R59.5bn last year) on the HIV/AIDS and TB conditional grant.

• R129.2bn to support affordable public transport.

Tax proposals:

• The VAT rate will increase from 14% tot 15% from 1 April 2018.

• R6.8bn will be raised from partial relief for bracket

• Increases in the general fuel levy and alcohol and tobacco excise duties will together raise revenue of R2.6bn. Ad valorem excise duties for luxury goods, such as motor vehicles will be increased.

• Estates above R30m will now be taxed at a rate of 25%. The fuel levy will increase by 52c per litre, effective 4 April 20918.

• The plastic bag levy, motor vehicle emissions tax and the levy on incandescent light bulbs will be raised to promote eco-friendly choices. A health promotion levy, which taxes sugary beverages, will be implemented from 1 April 2018.

• The general fuel levy will increase by 52c per litre on 4 April 2018.This will push up the generalfuel levy to R3.62 per litre of petrol after a hike of 30c per litre last year.

• Personal income tax will bring in R505.8bn, VAT R348bn and company tax R231bn.

Sin Taxes rises:

Drinkers of alcohol products will pay between 6% and 10% more for their habit. The increase on tobacco products is 8.5%.

Social Grants:

The specific increases in the different grants are:

• State old age grant from R1 600/month to R1 695.

•State old age grant, over 75’s from R1 621 to R1 1715

• War veterans grant from R1 620 to R1 715

• Disability grant from R 1 600 to R1 695

• Foster care grant from R920 to R960

• Care dependency grant from R1 600 tot R1 695

• Child support grant from R380 tot R405.

National Health Insurance:

Allocations of R4.2bn for national health insurance funded through adjustments to the medical tax credit, is an additions to the frameword following the 2017-MTBPS.

Selling of state assets for additional funding for SOC’s

A property audit conducted by the Deprtment of Public Works shows that national government owns up to 195 000 properties, with an estimated value of over R40bn. Gigaba said government will work on a program to better utilise or dispose of these properties in the short to medium term.

Government may be required in the coming year to provide financial support to several SOC’s which could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections, Gigaba said in his speech. Visit our Budget 2018 Special for all the news, views and analysis.

Source: MSN News