18/02/2018 14:42 SAST | Updated 18/02/2018 14:42 SAST

Gigaba To Deliver 'Tough And Unpopular' Budget On Wednesday

Hikes expected in VAT and personal income tax.

Finance Minister, Malusi Gigaba.
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Finance Minister, Malusi Gigaba.

Finance Minister, Malusi Gigaba is expected to deliver a "tough and unpopular" budget on Wednesday, reports the City Press.

Hikes in value added tax (VAT) and personal income tax are set to climb.

A senior official from the National Treasury told the publication that tough decisions have been made to fill the nearly R51-billion revenue shortfall. Trimming expenditure would be one attempt to raise half of this amount, said the official, with the other half to come from revenue management.

"It is hard news to swallow...It will be hard now, but South Africans will reap the rewards in five years. You simply cannot avoid taxes this time around."

Nedbank economists told the publication: "There is an outside chance that the VAT rate will be increased from its current 14 percent, with more essential goods added to the list of zero-rated goods to protect the poor.

"There is also a possibility the VAT rate on luxury goods could be raised ... The VAT rate has been left unchanged since 1993, but an increase ahead of next year's general election still seems unlikely ... A hike to 16 percent from 14 percent would currently raise nearly R50 billion before targeted relief."

Freezing public servants' salaries would have been best, noted the official.

"The truth is that we could have plugged the shortfall just by managing a public wage freeze. But there are political sensitivities, and Cyril is the right man to talk to Cosatu and other unions as he is their candidate."

"Since that may not be possible at all, we could settle at increases that are linked to inflation and nothing more."

On government companies, the official said Gigaba would announce sweeping changes, echoing President Cyril Ramaphosa's State of the Nation Address.

"There will be a strong stance on new boards and executive management on SOEs such as SAA, Eskom, Denel and others."