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Blog: 20 February 2018 (#Budget 2018: What to expect?)
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In today's blog we take a look at expectations of South Africa's budget for 2018 to be delivered by... Well we dont know. As we are not sure that current Finance minister Malusi Gigaba will still be in his post when the budget speech is to be delivered. With Cyril Ramaphosa taking over as ANC president large scale changes are expected in Cabinet and current finance minister looks to be in the firing line as the current finance minster has long been suspected of being a "Gupta" friendly minister.
He was in charge of Home Affairs when they got SA citizenship, he was in charge of Public Enterprises when the Guptas score multiple government contracts from State Owned Enterprises (SOE's). But enough of our shady current finance minister lets look at a few things we expect to be announced at Budget2018 |
What to expect at #Budget2018
Below we list a few points that we suspect will be brought up during the #Budget2018 speech tomorrow to be delivered in parliament. While a large number of the points we will mention were mentioned in the 2017 budget review too, the sad reality is that government will keep trying to milk the same cow it has been milking for years.
The medium term budget suggested South Africa faces a R50billion budget shortfall. That is SA's government spending is expected to exceed its income by R50billion. So in order to finance the shortfall government either has to borrow to fund the deficit, or raise taxes to cover the shortfall. Well that is what everyone will tell you. But there is another way to cover the shortfall.
STOP SPENDING SO MUCH MONEY.
Government needs to curb its spending, raising taxes on an already exhausted tax base will harm the economy and reduce possible savings levels in the economy. Government should therefore look to cut their spending substantially in order to cover at least part of the deficit.
During the State of the Nation Address (#SONA2018) the new president Cyril Ramaphosa mentioned that its inflated cabinet will need to be reduced. This is a good sign and perhaps the first step in South Africa's government looking to cut back on its expenses.
The medium term budget suggested South Africa faces a R50billion budget shortfall. That is SA's government spending is expected to exceed its income by R50billion. So in order to finance the shortfall government either has to borrow to fund the deficit, or raise taxes to cover the shortfall. Well that is what everyone will tell you. But there is another way to cover the shortfall.
STOP SPENDING SO MUCH MONEY.
Government needs to curb its spending, raising taxes on an already exhausted tax base will harm the economy and reduce possible savings levels in the economy. Government should therefore look to cut their spending substantially in order to cover at least part of the deficit.
During the State of the Nation Address (#SONA2018) the new president Cyril Ramaphosa mentioned that its inflated cabinet will need to be reduced. This is a good sign and perhaps the first step in South Africa's government looking to cut back on its expenses.
So we will say it one last time. South Africa's budget deficit is not due to a lack of income received in taxes, its due to excessive spending of the state.
Taxes to be raised
1. Personal income taxes will be raised (though we dont expect it to raised a lot). But there will be hardly any "bracketc creep" adjustments in this budget. I.e. the tax bracket levels will not be raised to counter the effect of inflation. Thus if your salary increased in the last year and you were pushed into a higher tax bracket, the chances are slim that government will raise the level of the tax brackets to get you back into the tax bracket you were in before you received a pay increase. Not adjusting for bracket creep should free up a lot of money for government to fund the shortfall.
2. Fuel levy increase. No surprise here, this is government's go to for raising easy money.
3. Dividend tax increase. Government preaches save more save more, even starting projects like tax free saving and investment plans, yet they keep raising taxes in dividends earned. Again this is an easy target as they see it as "taxing " wealthier citizens
4. VAT. Is this going to be the year in which government finally decides to increase the VAT rate? Sure unions will complain and leftist politicians and political parties will cry foul and say it will affect the poor the most. But to counteract this government can easily make more items purchased regularly by the poor VAT exempt (to shield them against the effects of increased VAT rates). The problem with VAT is once it has been raised, its an easy source of additional income and chances are next to none that it will ever be reduced again. VAT is expected to be pushed up to 15% from the current 14%.
5. Sin Taxes. Taxes on tobacco and alcohol products will be increased substantially again. Again demand for these goods are extremely inelastic, and people will buy even if prices are increased substantially, making it an easy target for excessive tax rates.
6. Company taxes. We dont see an increase in this tax coming. Government would be silly if they increase taxes here as we want to get investments into South Africa to boost our economy. Taxing companies more is not the way to get that going.
7. Transfer duties etc.. Slight adjustments to these rates (and to the levels of when taxes needs to be paid on property transfers etc).
We can go on for days but the main income related budget items mentioned above should suffice to prepare readers for what is coming tomorrow.
On the spending side:
1. Free tertiary education (the mess former president Jacob Zuma left the governing party to deal with. This will cost the government a substantial amount of money. And one of main reasons for expected budget shortfall.
2. Fewer government departments and smaller cabinet size to cut spending
3. Reduced defence budget. Surely no one will be invading South Africa anytime soon. So army budget is expected to be cut.
4. Health and NHI. Expected increase in spending on provision of health services. Implementation and funding of NHI still fussy and no clear details on this.
5. Policing and security. Since these agencies was stripped apart by Jacob Zuma its expected additional funding to prop up Hawks, NPA, SARS is expected. We also expect Tom Moyane to be gone as SARS commissioner in the near future. As well as Shaun "The Sheep" Abrahams who is head of the NPA to be gone pretty soon tool
South Africans are in for a tough time in this year's budget, but our economic prospects with a new president at the helm does look considerably brighter than it did 12months ago.
5. Sin Taxes. Taxes on tobacco and alcohol products will be increased substantially again. Again demand for these goods are extremely inelastic, and people will buy even if prices are increased substantially, making it an easy target for excessive tax rates.
6. Company taxes. We dont see an increase in this tax coming. Government would be silly if they increase taxes here as we want to get investments into South Africa to boost our economy. Taxing companies more is not the way to get that going.
7. Transfer duties etc.. Slight adjustments to these rates (and to the levels of when taxes needs to be paid on property transfers etc).
We can go on for days but the main income related budget items mentioned above should suffice to prepare readers for what is coming tomorrow.
On the spending side:
1. Free tertiary education (the mess former president Jacob Zuma left the governing party to deal with. This will cost the government a substantial amount of money. And one of main reasons for expected budget shortfall.
2. Fewer government departments and smaller cabinet size to cut spending
3. Reduced defence budget. Surely no one will be invading South Africa anytime soon. So army budget is expected to be cut.
4. Health and NHI. Expected increase in spending on provision of health services. Implementation and funding of NHI still fussy and no clear details on this.
5. Policing and security. Since these agencies was stripped apart by Jacob Zuma its expected additional funding to prop up Hawks, NPA, SARS is expected. We also expect Tom Moyane to be gone as SARS commissioner in the near future. As well as Shaun "The Sheep" Abrahams who is head of the NPA to be gone pretty soon tool
South Africans are in for a tough time in this year's budget, but our economic prospects with a new president at the helm does look considerably brighter than it did 12months ago.
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