Gigaba’s last-gasp gambit

2018-02-22 13:56
Finance Minister Melusi Gigaba arrives to deliver his Budget speech at Parliament on Wednesday.

Finance Minister Melusi Gigaba arrives to deliver his Budget speech at Parliament on Wednesday. (v)

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WATCH: How will the latest 'sin tax' increases affect students?

2018-02-22 12:00

The VAT hike and increases in sin taxes seemed to have dominated the conversation among ordinary South Africans after the budget. Watch. WATCH

Finance Minister Malusi Gigaba was forced to tap VAT for the bulk of government’s extra spending requirements as tax collections dried up from years of low growth and economic mismanagement.

The one percentage point increase in VAT to 15% announced in Wednesday’s Budget, the first increase in VAT since 1993, is expected to raise an additional R22,9 billion for government.

That amounts to about 64% of the total R36 billion of additional revenue that the government plans to raise in the 2018/19 financial year.

VAT contributes just a quarter of the country’s gross tax revenue, and the level of the tax is low compared with other countries, Gigaba said.

The zero VAT rating for basic foods such as maize meal, brown bread and rice, as well as above inflation increases in government grants, would alleviate the impact of higher VAT on poorer families, he said.

Lower income families will also benefit from an increase in the bottom three personal income tax brackets, and the rebates, he said.

No sharp increases in personal income tax rates was announced.

The government needs to raise the additional revenue because it faces a R48,2 billion revenue gap from lower tax collections in 2017, and because it needs to fund the fee-free higher education plan for lower income families announced in December.

The biggest reallocation of government funds in the Budget was on higher education and training, which received an additional R57 billion over three years.

“This is the fast growing category [in the Budget], with an annual average growth of 13,7%”, said Gigaba.

The Budget was also market friendly in that it projected a marginal narrowing in the budget deficit to 3,5% in 2020/21 from 4,3% of GDP in 2017/18.

It also tackles concerns expressed by many commentators about fast rising government debt, with Gigaba forecasting debt-to-GDP to stabilise at 56,2% in 2022/23, and decline thereafter. The government will make up its other additional revenue requirements for 2018/19 with increases in the general fuel levy, and higher alcohol and tobacco excise duties, which will raise an extra R2,6 billion.

Some R6,8 billion will also be raised from partial relief for bracket creep — the phenomenon in terms of which inflation pushes taxpayers into higher tax brackets.

Excise duties on luxury goods such as motor vehicles will be increased.

Estates above R30 million will be taxed at a rate of 25%, instead of 20%.

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 take effect from April 1, 2018.

The general fuel levy will increase by 52c per litre on April 4.

Personal income tax in 2018/19 is expected to bring in R505,8 billion, VAT R348 billion and company tax R231 billion.

The government plans to spend R205 billion on health in 2018/2019, a figure that grows to R240 billion in 2020/21.

The old age, disability and care dependency grants will increase by R90 to R1 690 on April 1, and by R10 to R1 700 on October 1.

The child support grant increases by R20 to R400 on April 1, and by another R10 to R410 on October 1.

Gigaba said the government plans to assist financially hamstrung state- owned enterprises to develop and implement “robust turnaround plans”.

He said some of these ailing institutions will require restructuring with equity investment, the disposal of non-core assets, direct capital injections and the introduction of strategic equity partners.

Read more on:    pietermaritzburg  |  budget speech 2018

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