The 2018 budget speech was never going to please everyone. With a significant budget deficit and the financial burden of free higher education, the new budget was always going to involve some difficult decisions. Now, with the plan on the table, the only question remaining is how will these measures affect ordinary South Africans? It’s been claimed that the new budget will generate R36 billion rand while shielding the poorest of South Africa’s households from a VAT increase. But how does it aim to achieve this, and what will these measures really mean for the country’s citizens? Here, we unpack the budget speech and its implications.
Given that personal income tax has increased steadily in recent years, it was always assumed that the new budget would include a VAT increase, and not another increase in personal tax. South Africa’s VAT rate is still low compared to other African countries, and the Budget Review believes that the increase in VAT by one percent will have the least detrimental effect on economic growth and employment over the medium term.
This increase won’t affect ‘zero-rated items’ like brown bread, rice, lentils, vegetable oil, pilchards, dried beans and maize meal (the staples of people living on the breadline), but the cost of everything else will go up. This will force poor South Africans to dig deeper into already empty pockets, and there’s no denying that things will get more difficult before they get better. This necessary evil is expected to bring in R22.9 billion.
Ad valorem taxes will also go up. The excise duty for cars will be raised from 25% to 30%, and the definition of cell phones will be changed so that smartphone also become subject to ad valorem taxes. Treasury has stated that these measures are intended to ensure that households spending more on luxury goods contribute proportionally more in taxes. This measure is expected to bring in an additional R1 billion.
This will only affect South Africans whose estates are valued at over R30 million (most of us are quite safe). Whereas in the past, South Africa’s rich paid 20% in estate tax, they will now pay 25%. This measure is expected to raise an additional R150m in additional revenue.
With an increase of 52c a litre on the fuel levy, South Africans will also be paying more at the pump. A litre of unleaded octane currently costs R13.49 at the coast and R13.90 inland. This will increase to R13.49 and R14.01, and that, of course, will affect the price of everything from taxi fares to food.
'Sin' taxes are also going up, and smokers and drinkers will pay between 6% and 10% more for their habit. In addition to these, there is also a new levy to be imposed on sugary drinks, the hope being that it will steer people towards healthier options. Together with the fuel levy, these measures will raise R2.6 billion in revenue.
To partially shield those on the breadline from the VAT increase and fuel levy hike, social grants are being adjusted by more than inflation. Old age, disability and care dependency grants will rise by R90 a month starting 1 April 2018 and then again by another R10 from 1 October 2018. The child support grant will rise by R20 a month from October. The extent to which these will protect the most vulnerable from rising costs has been hotly debated, and many NGO’s worry that the poor will pay the highest price in this new deal.
While the tax hikes certainly didn’t surprise anybody, there was one point in the 2018 budget speech that made it different to those of years past: it addressed the issue of fruitless and wasteful expenditure. To address the problem and reign in spending, a reduction in cabinet expenditure of R85 billion over the next three years has been proposed. State owned enterprises will also be tightening their belts following a proposal that will deny tax deductions to state owned enterprises that have been guilty of wasteful and fruitless expenditure. Hopefully this is a sign of good things to come. Everyone is hoping for a very different budget in 2019 and beyond.