Issue 313 | 22 February 2018
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The Minister of Finance, Malusi Gigaba, delivered the Budget Speech in National Assembly in Cape Town on 21 February.
"This is a tough but hopeful budget", he said at the start of his speech.

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

The main element of the Budget is the rise in Value-Added Tax (VAT) for the first time since 1993, from 14% tot 15%. Gigaba said the rate was still low compared to some of South Africa's peers.

In total, an additional R36 billion 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 R85 billion over the next three years.

The allocation for phased in fee-free higher education amounts to R57 billion over the next three years, of which R12,4 billion 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 Technical and Vocational Education and Training 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 R6 billion set aside in 2018/19 (R10 billion over three years) for, among others things, drought relief and augmenting public infrastructure.

Social grants were increased by around 7% on average.

Minister 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 gross domestic product (GDP) in 2017/18 to 3,5% in 2020/21.

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 investment by reducing policy uncertainty and promoting good governance and sound financial practices at state-owned companies.

  • 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 to 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.
Budget framework:
  • The budget deficit is projected to narrow from 4,3% of GDP in 2017/18 to 3,5% in 2020/21.

  • Main budget non-interest expenditure is projected to remain stable at 26,6% of GDP between 2017/18 and 2020/21.

  • Net debt is expected to stabilise at 53,2% of GDP in 2023/24.

  • Proposed tax measures will raise an additional R36 billion in 2018/19.

  • The fiscal framework reflects two major changes that followed the 2017 MTBPS: medium-term expenditure cuts identified by a Cabinet subcommittee amounting to R85 billion, and an additional allocation of R57 billion for fee-free higher education and training.

  • Contingency reserves have been revised upwards to R26 billion over the next three years.

  • Real growth in non-interest expenditure will average 1,8% over the next three years. Post-school education and training is the fastest-growing category.

Spending programmes:

Over the next three years, government will spend:

  • R528,4 billion on social grants.

  • In total, R324 billion is provided for higher education and training, including R57 billion of new allocations for fee-free higher education and training.

  • R792 billion on basic education, including R35 billion for infrastructure, and R15,3 billion for learner and teacher support materials, including ICT.

  • R667,8 billion on health, with R66,4 billion on the HIV, AIDS and TB conditional grant.

  • R123,3 billion on subsidised public housing.

  • R125,8 billion on water infrastructure and services.

  • R207,4 billion on transfers of the local government equitable share to provide basic services to poor households.

  • R129,2 billion to support affordable public transport.

Tax proposals:

In 2018/19:

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

  • R6,8 billion will be raised from partial relief for bracket creep.

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

  • Estates above R30 million will now be taxed at a rate of 25%.

  • 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 general fuel levy to R3,62 per litre of petrol after a hike of 30c per litre last year.

  • Personal income tax will bring in R505,8 billion, VAT R348 billion and company tax R231 billion.

  • Drinkers of alcohol products will pay between 6% and 10% more for their habit. The increase on tobacco products is 8,5%.


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