Budget likely to be austere
SOUTH Africans need clarity and certainty in terms of the energy sector when the finance minister delivers his 2018 budget speech on Wednesday.
Head of Norton Rose Fulbright’s tax team Andrew Fulbright says the country needs a reliable energy supply, and the future source and cost have become critical.
Questions plaguing many taxpayers are whether Eskom will need another bailout, and what the true costs are of renewable energy and nuclear power.
“A lot of people are suggesting that nuclear is part of some sort of corrupt scheme. I do not know the answer to that one, but that is certainly the suggestion,” Wellsted says.
A crippled Eskom has recently received a bailout in the form of a R5-billion short-term loan from the Public Investment Corporation, which is the custodian of public servants’ pension money held in the Government Employees Pension Fund.
Wellsted says there had not been a single, clear message from government on several policy matters.
“I think in a time of a big budget deficit, with an economy that is suffering from very slow growth, if any, we need to return to the fiscal discipline of the days of [former finance ministers] Trevor Manual and Pravin Gordhan. We cannot continue spending money that we do not have.”
South African Institute of Tax Professionals CEO Keith Engel believes the budget will be an “austerity budget” like we have not seen in many years.
“This austerity will come in the form of tax increases and budget cuts. The easy money is an increase in the value-added tax (VAT) rate and a lack of inflationary adjustments for personal income tax.”
Speculation exists that there may be a reallocation of the South African Customs Union (Sacu) formula and a reallocation of the skills development levy to the general budget.
“Whatever the outcome, it will not be pleasant. Hopefully these increases are the last for the foreseeable future and that the credit rating agencies respect us for the effort,” says Engel.
Wellsted says the medium-term budget policy statement in October was packed with warnings of tax increases this year.
“Commentators seem to favour an increase in the VAT rate since it will have the most meaningful impact on bridging the budget shortfall.”
The shortfall for the current tax year (2017-18) is estimated to be between R50-billion and R90-billion.
Wellsted says it was possible to “soften” the impact on the poor by introducing a tiered VAT system with different rates for different goods and services ranging between 0% and 16%.
Wellsted says other issues likely to be addressed in the 2018 budget relate to the carbon tax, the introduction of the sugar tax in April and tax and exchange control regulations surrounding cryptocurrencies such as bitcoin. —