Budget 2018

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Vox Populi Vox Dei

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To get the ball rolling...

Zuma budget hole leaves SA with tough decisions on tax

These are the five biggest potential revenue-generating tax changes the minister may announce at the February 21 budget.

1. Value-added tax

South Africa could collect as much as R22bn if it raises the rate of value-added tax, or VAT, by 1 percentage point to 15%, PwC estimates. It would be the first change since 1993. Removing the zero rating on fuel purchases could bring in another R3bn according to Citigroup. Six of 10 respondents in a Bloomberg survey expect to see an increase in the rate.

“Being a regressive tax, it has been avoided for political reasons,” Frank Blackmore, the chief economist at EF Consult in Pretoria said. But it is a “definite possibility” given the country is running out of other revenue-generating options, he said.

2. Medical-insurance tax credits

Health Minister Aaron Motsoaledi in July released a health-insurance policy document that said he wanted to remove the tax credit to users. This is to fund the proposed National Health Insurance plan that would cover all citizens. Taking the benefit away could add almost R20bn.

3. No relief in personal-income tax

If the Treasury chooses not to adjust tax brackets to compensate for inflation, the government could reap as much as R15bn in additional revenue, Citigroup said.

4. Raising the top income-tax rate

Increasing this from 45% may bring in as much as R10bn, depending on the new rate, Citigroup says. The levy affects about 103 000 people who earn more than R1.5m annually and was raised from 41% in the year that ends in February.

While the move wouldn’t be a large revenue generator, it would send “the right signal” in one of the world’s most unequal nations, Nedbank Group chief economist Dennis Dykes said. It would show “that everyone is paying their contribution,” he said.

5. Sugar tax

One thing that the Treasury has in its favor is a tax on sugary beverages, which Zuma signed into law in December. That may add as much as R11bn rand to government coffers, Citigroup estimated.
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Regarding point 2, it will add 20 billion to a fund that requires 5 times the amount to even be viable. With regards to 5, where does this 11bn actually go? Will it end up the same as the grocery packet tax? How about they fix government waste
 
Closing the gaps in waste and corruption would probably help, but they need something more immediate than that.
 
Experts give their budget expectations

Nazmeera Moola – co-head of fixed income, Investec Asset Management

“Around R45 billion of tax hikes and spending cuts are needed in the fiscal year that starts 1 April 2018 to stabilise the South African fiscal outlook. With free tertiary education weighing on the fiscus, it will be difficult to achieve the R31 billion in expenditure cuts that were planned. At most R15 billion is likely.

“Therefore, tax hikes of around R30 billion are needed. Last year, personal income taxes bore the brunt of the adjustment, with very little offset provided for inflation in the tax brackets. As a result, households earning from R350 000 per annum saw a decline in real wages due to limited tax relief for inflation. While that manoeuvre can be repeated this year, it is woefully inefficient – and did not raise nearly the amount of expected revenue in 2017. A far better option is to hike Value Added Tax (VAT) by at least 1%.”

Tsitsi Hatendi-Matika – market analyst, Absa Wealth and Investment Management

“VAT has been a lever that the National Treasury refused to pull for years, likely because of its political consequences, but a 2% increase in VAT would create the much required cash. An increase in VAT is expected to signal government’s commitment to addressing the issue of fiscal slippage.

“An alternative to increasing VAT in a linear manner would be to remove the zero rating for VAT on fuel sales. We anticipate that this could raise up to R18 billion. Given that this would increase the retail price of fuel, if not offset by a cut in the General Fuel Levy, this means that National Treasury would need to get creative around this for it to be palatable for consumers.”

Tracy Brophy – chairperson of the South African Institute of Chartered Accountants Tax Committee

“Even though the personal income tax taxpayer base is small (it is estimated that around 80% of personal income tax is being paid by 25% of the personal income tax taxpayers), it would appear that this base remains a popular target for tax increases despite it arguably having reached the point of diminishing returns. A way of targeting this base without adjusting the personal income rate any further is by increasing the existing so-called ‘wealth taxes’ – estate duty (20%), donations tax (20%) and capital gains tax (CGT) (40% inclusion rate resulting in an effective rate of 18% for the top bracket which are taxed at 45%).

“Even though the Davis Tax Committee has only recommended an increase in estate duty to 25% and an increase in the CGT inclusion rate for corporates (from 80% to 100%), there is nothing preventing an increase to 25% for both estate duty and donations tax and an increase in the inclusion rate for CGT to either 50% or 60% (taking the effective CGT top rate to 22.5% or 27%).”

Lullu Krugel – chief economist for PwC Africa

“The finance minister must navigate an intricate balancing act between bailing out state-owned enterprises (SOEs) and dealing with credit ratings agencies threatening more ratings downgrades. Ideally, SOEs should not require recurring cash injections from the state. While the government is the main shareholder in these entities, shareholders of other big companies are seldom asked to make annual contributions to the financial wellness of these corporations.

“The 2018 budget needs to set in motion tangible plans to achieve President Ramaphosa’s ideal of restoring SOEs as drivers of economic growth and social development. Proper accountability structures will improve the quality of governance at these companies which, in turn, would aid the financial health of SOEs. Improved financial management would eventually translate into improved credit ratings which, in turn, will encourage a greater volume of financiers to invest in SOEs. The result will be a decline in fiscal exposure to the performance of SOEs. Looking beyond Budget 2018, President Ramaphosa is looking to undertake a process of consultation with a variety of stakeholders to comprehensively review the funding models of SOEs.”

Arthur Kamp – economist, Sanlam Investments

“The Treasury should help change expectations of further sovereign debt rating downgrades into expectations of sovereign debt rating upgrades. It can go some way towards achieving this by emphatically shifting government expenditure towards investment in infrastructure and human capital and away from government’s wage bill. This will not only make a contribution to South Africa’s potential growth rate, but will also help protect the state’s balance sheet as borrowing is directed towards the accumulation of capital rather than consumption. Critically, expenditure on human capital includes health and education, which necessitates sharp cuts to government consumption spending. Failing this, the expenditure burden is likely to prove too much for our economy to cope with.”

Craig Pheiffer – chief investment strategist, Absa Stockbrokers and Portfolio management

“The story delivered by the finance minister needs to be achievable and believable and it must talk to a definite return to fiscal consolidation. It’s going to be a tough ask to get the budget deficit below 3% over the next three years, but Treasury must show a firm commitment to reducing the deficit over the three-year budget framework. Anything short of that will see Moody’s downgrade our country’s rating to sub-investment grade in a short space of time.”
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Knowing the ANC, they won’t increase VAT & company tax is out of bounds with US move.. so I reckon the usual PIT (no inflationary relief) & medical aid rebates removed, vat exception on petrol removed.

VAT, removal of zero rating on everything & Social Security Spending increase (compensate for VaT removal for poor/onfunding) would be more ideal but I don’t they’d pull this off
 
If they don't increase vat then we will be downgraded by moodeys. No other way short of cutting government wage bill (which will never happen).
 
krycor said:
VAT, removal of zero rating on everything & Social Security Spending increase (compensate for VaT removal for poor/onfunding) would be more ideal but I don’t they’d pull this off
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Increasing and removal of zero rated VAT will hurt more of the poor than social security can adjust overall.
 
Don't worry everyone, the massive increase in your tax liabilities will be eased by lower data costs and fictitious promises of reduced goverment wastage in obfuscated 3 year plans.
 
CataclysmZA said:
Closing the gaps in waste and corruption would probably help, but they need something more immediate than that.
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The new team being in charge for 2 weeks, they can't exactly change the whole budget last minute, or put thumbsuck savings on each department.

You need to audit first (even if it was done, I wouldn't trust one second the existing audits), identify potential savings and then apply them.

It's necessary to cut expenditure (and cut drastically the fruitless and wasteful one), but can't be done overnight.

In the meanwhile, you need to borrow and tax to keep the government running.
 
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