Cape Town - Finance Minister Malusi Gigaba on Wednesday unveiled a budget that will raise taxes and cut spending with the hopes of fending off a third junk credit rating.
These charts show the tradeoffs the National Treasury has had to make to steer the fiscal ship away from a debt downgrade.
A smaller-than-projected budget deficit will mean slower growth in borrowing. Gigaba forecast in October that gross government debt will exceed 60% of gross domestic product from 2022 onward. The Treasury has now trimmed the projection to reach a turning point of 56.2% in that year.
The budget shortfall is projected to narrow to 3.5% of GDP by 2021, compared with the October estimate of 3.9%, due to improved economic growth and revenue collection.
Moody’s Investors Service put the economy on debt review for a downgrade to junk last year, the only major ratings company to still assess the bonds as investment grade. Improved economic growth forecasts and plans to narrow the fiscal deficit may placate Moody’s, which said in November its review would consider the budget plans.
The Treasury has proposed ways to increase tax revenue by R36bn to R1.34trn in the 2019 fiscal year.
The one percentage-point increase in the value-added tax rate would be the single-biggest contributor, adding R22.9bn. The additional revenue from not fully adjusting income-tax brackets to compensate for inflation would be R6.8bn, while the introduction of a tax on sugary beverages would contribute R1.9bn, the Treasury said.
The fastest-growing spending category is post-school education and training, which will advance by an average of 13.7% annually in each of the three fiscal years through 2021. This comes after the ruling African National Congress pledged free post-school education for students that come from homes where the combined household income is less than R350 000 annually.
The National Treasury proposed raising the value-added tax rate for the first time since 1993, increasing it by one percentage point to 15 %.
Some products, such as rice, maize meal and paraffin are exempted, which partially offsets the effects on the poor, it said. The wealthiest 30% of households contribute 85% of VAT revenue, the Treasury said.
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