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This is the maiden budget of Malusi Gigaba, Minister of Finance, and the first under the presidency of Cyril Ramaphosa. With a deficit of over R50 billion highlighted in the mini-budget in October 2017, this was always going to be a tough budget to compile. Ongoing poor management by the Zuma administration over many years has left state-owned organisations in quite a shambles, especially with the example of Eskom that faces a liquidity crisis.

In order for the deficit to be covered or significantly reduced, the Minister has had to go beyond the normal bracket creep and “sin” taxes in order to balance the books. The highlights, in the order of tax revenue raised, include:

  • An Increase in VAT from 14% to 15%: This is the first increase in 25 years and not a popular move on the part of the ANC Government. However, Ramaphosa had already mentally prepared the way for such a move in his State of the Nation (SONA) address on 16th The increase, which becomes effective from 1st April 2018, will raise the bulk of the revenue required; being an estimated R22.9 billion. This measure is probably the fairest way to spread tax across the whole population, especially when considering that necessities like maize and bread have a zero VAT rating.
  • Small Adjustment in Tax Brackets: These adjustments, together with normal “bracket creep” due to inflation, should bring in around R6.8 billion. Only the lower three brackets have been adjusted, leaving most of the burden to be borne by earners of over R410, 000 per annum.
  • Tax on Petrol raised by 52 Cents per Litre: Again, this is an annual occurrence and one that spreads the burden over a broader front. The tax has been split as to 22 cents for the general fuel levy and 30 cents for the Road Accident Fund. This increase, together with increases in tobacco and alcohol taxes, should raise R2.5 billion.
  • Excise Duty on the Import of Luxuries Increased from 5% and 7%, to 7% and 9%: This should raise R1 billion. After increasing VAT, the Minister must be seen to be taxing the rich as well – also good for gaining votes!
  • Estate duty: Estate duty has been increased from 20% to 25% for estates valued at over R30 million. This is the first increase in estate duty in many years and the revenue generated is estimated to be only R150 million. However, this is a political move whereby the government is seen to be taxing the rich.
  • The introduction of a carbon tax is expected in January 2019.
  • The spending surprise in the Budget is the controversial fee-free higher education promised by Zuma. As this is a huge expenditure item (R57 billion) and funds are limited, the benefit will be phased in over several years. Expenditure for 2018 will be around R12.4 billion.
  • On the Macro-economic front, the Government’s GDP estimates have been revised upwards. GDP for 2017 has been increased to 0.1% from 0.7%. Growth for 2018 is estimated at 1.5%, and for 2019, 1.8%. The current account deficit is expected to come down to 2.3%, compared with the 4.4% it was in 2015. Inflation should remain below 5.5% in the time up to 2020.

The government owns 195, 000 properties, and these will be assessed with a view to disposal or more efficient utilisation. There is obviously scope to privatise some state owned enterprises that would raise much needed finance. The reduction in cabinet posts and scaling down of Government departments should achieve significant savings in the medium term. Optimists are also hoping to recover billions from the Gupta state capture saga.

Conclusion

The problems within S.A cannot be solved by budgeting alone, but rather by tackling the underlying problems; many of which Ramaphosa addressed in his recent State of the Nation address.

Undoubtedly, many problems can be solved in the context of a growing economy, and this should be a top priority for government. Seen in the context of years of excesses spending and poor financial management, this Budget can be viewed as a step in the right direction.