New hope in SA amid VAT and other tax hikes
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 in the National Assembly yesterday afternoon was all about rebuilding and restoration in 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.
The finance minister noted that the economic outlook and indicators have improved since his mini budget in October, which painted quite a gloomy picture.
The main element of yesterday’s Budget is the first rise in the VAT rate since 1993, from 14% to 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 in estate duty.
On the spending side, fiscal consolidation is set to 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, Gigaba said. New first-year students with family incomes of below R350 000 per year at universities and TVET colleges will be funded for the full cost of their study in the 2018 academic year.
The state’s contingency reserve will also be strengthened, with a provisional allocation of R6bn set aside in 2018/19 and R10bn over three years for, among others things, drought relief and augmenting public infrastructure.
Social grants were increased by an average of about 7%.
Gigaba stressed that bringing down debt levels is important, saying: “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 to 3.5% in 2020/21.
In all, the budget could be described as balanced and responsible under the circumstances, which could put the South African fiscal position on a healthy path.