Mon 19 Feb 2018, 13:33
During South Africa's Budget Speech 2018 on Wednesday 21 February, increased taxes, free education and improved conditions for investment were announced by Finance Minister Malusi Gigaba in Parliament. Here Budget Speech 2018 highlights:
Tax is increasing
Increased taxes are expected to bring in an additional R36 billion in revenue, via a combination of an increase in VAT from 14 to 15%, restructuring personal income tax rebates and brackets and an increase in tax on tobacco and alcohol of between 6 and 10%. In addition, a 55 cent increase to the fuel levy was announced, as well as increases in estate tax and taxes on luxury goods.
A carbon tax is also set to be implemented in January 2019.
Education is a priority
The biggest shift in government spending for the medium-term will be in higher education and training, with additional funding of R57 billion allocated. Overall, basic education received the largest share of the South Africa’s 2018 budget, followed by Health and Social Development.
First year students entering university and TVET collages in 2018 will have the full cost of their education funded, provided their family income is below R350 000 per year. In addition, NFSAS loans will be converted to bursaries for all returning students in 2018.
Government’s free education programme will be rolled out on a year-by-year basis from 2018 onwards.
The safety net remains in place.
Amendments to the medical expenses tax subsidy will allow an additional R4.2 billion to be allocated to the NHI. In addition, Treasury announced increases in old-age, disability and child-care grants and the continued zero-rating of essential goods. Revisions to tax rebates and brackets will also mainly be targeted at providing relief for those on the lowest three tiers.
Government nods to business
The announcement of several initiatives aimed at increasing economic growth align with the agenda announced by President Ramaphosa during SONA 2018. Six Special Economic Zones will offer reduced corporate tax rates and employment tax incentives, while R1.4 billion has been allocated to a fund to support small businesses and start-ups.
State Owned Enterprises remain the elephant in the room
Other than acknowledging the work being done by law enforcement and the upcoming State Capture tribunal, and pledging to work with SOEs to produce turnaround plans, the only concrete reform to came in the form of a plan to improve liquidity through improved use of properties owned by State Owned Enterprises, estimated to be worth around R40 billion.
Plans to "accelerate the settlement of restitution claims" did not seem to be a radical departure from current government policy, despite hints given by President Ramaphosa earlier this week.
Watch: live news channels online
During his SONA 2018 speech President Cyril Ramaphosa acknowledged the need to grow the economy but at the same time spoke about “tough decisions” that needed to be taken to reduce debt and reign in the deficit. With South Africa facing tax revenue shortfall estimated to be between R50 billion and R90 billion, the steps taken towards addressing this will give a strong indication of the priorities of the new ANC administration.
With President Ramaphosa confirming that free higher education will be available to more households this year, Minister Gigaba will be expected to explain how spending will be reduced in other areas in order to afford this.
The consensus among experts is that personal tax could be going up, and has been alluded to by the Finance Ministry themselves, warning South Africa to prepare for a “tough and unpopular budget”. With President Ramaphosa’s need to enlist the help of big business to grow the economy, it seems an increase in individual tax rates is one of the few options available to increase government revenue.
Eskom, SAA, Denel, et al
Budget 2018 is probably going to be tough, but it’s unpopularity will likely be directly tied to it’s approach to the State Owned Enterprises that have been at the heart of State Capture scandals and dysfunctional government over the last eight years. Increasing personal taxes while continuing to subsidize State Owned companies that are collapsing due to corruption and maladministration is going to be a tough sell.
Speaking of Eskom, here’s hoping that Budget Speech 2018 provides a definitive and conclusive end to planned nuclear energy developments in South Africa. Speaking at Davos earlier this year, President Ramaphosa was very clear on the issue when he told reporters that South Africa had “excess power… and no money to go for a major nuclear plant building”. We hope that the Budget Speech 2018 will reflect this view.
Watch the Budget Speech 2018 online with news channels streaming live on DStv Now.