For the first time in democratic
South Africa value-added tax (VAT)
is raised – by one percentage point
to 15% as part of the “tough but
hopeful” Budget Finance Minister
Malusi Gigaba presented on
Wednesday. The VAT hike is central
in a set of tax increases, including
higher estate and luxury goods
duties and an extra 52 cents per
litre in fuel levies, to generate an
additional R36-billion for the
national purse. The tax hikes come
alongside R85-billion government
expenditure cuts over the next three
years to fund inclusive economic
growth and social spending, from
free higher education to health care
and social protection. By
MARIANNE MERTEN.
The increase in value added tax
(VAT) to 15%, from 14%, with
effect of 1 April 2018, is a tough
political choice. Trade unions and
civil society organisations are on
public record opposing this
option.
But Finance Minister Malusi
Gigaba, speaking to media ahead
of delivering his maiden Budget,
maintained this was the right
decision, and one with the least
negative consequences for
economic growth or social
protection. And South Africa’s VAT
rate was still below peer countries
like Argentina, Zimbabwe and
Russia.
There would be talks with the
trade unions once the
announcement was made. “It is
difficult to consult about taxes
prior to the Budget because we
don’t want not to take the
decision,” said Gigaba, adding that
it was important to note the
basket of zero-rated food
remained to protect poor
households. And above inflation
social grant increases, alongside
steps towards free higher
education, were key in shielding
the poor. In any case, the VAT
increase would predominately
affect higher income earners.
It was this message he later also
relayed to MPs in the context of a
R1.67-trillion budget that sought
to stabilise public funding, while
improving South Africa’s fiscal
status. “Increasing VAT was
unavoidable if we are to maintain
the integrity of our public
finances,” he said in the House.
According to the Budget Review,
additional personal income tax
increases were not an option.
These would have had “greater
negative consequences for growth
and investment” than the VAT
increase. South Africa’s personal
tax burden has steadily increased
in recent years – last year saw a
one percentage increase in
personal tax for all but the lowest
income earners and a new tax
bracket for those earning over
R1.5-million a year – amid a
household debt ratio of 72.5% in
the third quarter of 2017.
The VAT hike became necessary
due to a budget shortfall of R48.2-
billion, largely due to the failure
by the South African Revenue
Service (Sars) to hit tax collection
targets. The initial shortfall of
R50.8-billion announced by in the
October 2017 Medium-Term
Budget Policy Statement (MTBPS)
was revised down since a
reduction in loan redemptions,
and some R3-billion in additional
tax collection since last year.
And there are other tough
decisions. The R85-billion
reduction in government
expenditure over the next three
years is funded by cuts at national
level of R53-billion, but also
reductions in the transfers to
provinces and local government,
R5.2-billion and R3.2-billion
respectively. The Budget Review
document also lists reductions in
at least some of the conditional
grants – overall these will be cut
by R28-billion, according to the
Budget Review – like the human
settlement development grant that
is reduced by R7.2-billion.
“Although this will slow the
delivery of new houses and
serviced sites, the sector is still
expected to build 316,813 houses
and upgrade 417,391 sites in
informal settlements…”
For Gigaba, Wednesday’s R1.67-
trillion Budget for the 2018/19
financial year was juggling act to
put the rands and cents to
government’s focus on renewal,
confidence and collaborative
partnerships. The outlook for
South Africa’s economy remains
fragile even amid a recovery of
commodity prices and greater
confidence since President Cyril
Ramaphosa was sworn in earlier
this month.
Economic growth is projected at
1.5% for 2018, slightly up from the
below 1% anticipated last year.
While inflation is down, and is
expected to remain around 5.3%
for 2018, the debt to gross
domestic product (GDP) remains
high: it is expected to stabilise at
56.2% by 2023, although that’s
somewhat less than the 60%
anticipated in October’s MTBPS.
Borrowing requirements increased
to R246-billion, up from an
initially projected R220.9-billion.
The budget deficit is anticipated to
stand at 3.8% of GDP in the
2017/18 financial year, dropping to
3.7% by 2021. Government’s debt
service costs stand at R180.1-
billion in the 2018/19 financial
year.
As the Budget Review puts it: “The
recovery in economic growth is
not yet broad based. Much
depends on continued
improvements in political and
political certainty and a supportive
global environment.”
But Gigaba was confident. The
Budget plans, he told journalists
ahead of his Budget speech, “are
sufficient to restore
sustainability… The decisions, as
difficult as they are, will have the
least effect on growth… We need
to sustain the momentum of
change so that we continue to
boost confidence that will assist
the economy to grow going
forward”.
In line with government’s new
dawn direction to ensure all South
Africans are participants in the
economy and can expect a better
life, the largest slice of the R1.67-
trillion budget goes to social
services, which account for R1.01-
trillion. Education remains the
biggest budget line item at R351.1-
billion, followed by health at
R205.4-billion and social
development, including the 17-
million grants, at R259.4-billion.
Peace and security are allocated
R200.8-billion.
“The challenge of our time, to
build a South African in which all
people have a decent standard of
living, access to economic
opportunities and opportunity to
pursue their dreams. It is these
core aspirations which the Budget
must speak to, enable and indeed,
advance,” said Gigaba in his
Budget speech. “We stand before
you with a profound sense of
optimism, purpose and resolve.”
And so the money was found to
fund the progressive introduction
of free higher education – R57-
billion over the next three years,
with R12.4-billion available in the
2018/19 financial year to fund
students from households earning
below R350,000 a year. Returning
students would have loans
converted to non-repayable
bursaries, said Gigaba: “This is an
important step in breaking the
cycle of poverty and confronting
youth unemployment.”
The phased implementation of the
National Health Insurance (NHI),
to provide universal access to
quality health care received R4.2-
billion through adjustments to the
medical tax credit. In addition
further allocations were made to
the fight against HIV/Aids.
Money also was found for the
above inflation increases in social
grants. From 1 April, old age
pensions increase to R1,690 a
month, and again from 1 October
to R1,700 a month. The child care
grant increases by R20 to R400 a
month from April, and to R410 a
month in October 2018.
And R6-billion was found for
drought relief and related public
infrastructure development. “We
need to conserve water. We have
among the highest levels of per
capita daily domestic water
consumption levels in the world,
but also some of the highest levels
of inequality in reliable access to
water,” the Finance Minister told
MPs.
While most immediately
government expenditure cuts are
financed through reduced
allocations to provincial and local
governments, the 2018/19 Budget
also focused on increased
spending efficiency. Thus the
budget facility for infrastructure
within the National Treasury aims
to improve planning and
execution of large infrastructure
build projects. And Gigaba has
made undertakings with regards to
a “dialogue on mining policy” –
the Chamber of Mines' legal
challenge to the mining charter
was put on hold for now after a
meeting with Ramaphosa – and
greater governance and financial
management accountability by
State-owned Entities (SOEs) like
Eskom.
Fiscal discipline would be
maintained, Gigaba said as the
mantra of taking “the tough
decisions” for sustainability and
growth became the thread
through the 2018/19 Budget.

https://www.dailymaverick.co.za/article/2018-02-21-budget-2018-vat-is-increased-a-first-for-new-sa/#.Wpvo5HRBtAg

Increasing of tax will make life difficult for most people who are unemployed. Every price of a good will inceease and this couses more poverty in our country.