South Africans will have to dig deeper in their pockets to bridge the multibillion-rand Budget deficit and fund various government projects like free higher education for the poor.
In his Budget speech on Wednesday, finance boss Malusi Gigaba announced, among other things, an increase in value-added tax (VAT) from 14 percent to 15 percent and a 52-cent-per-litre increase in fuel levies.
Kenosi Magosha, head of client solutions for recurring savings at Sanlam, said Gigaba has taken a position to steer the country's finance in a direction aimed at restoring confidence and laying the foundation for growth into the future.
Free education is an investment into the youth, the future of South Africa we need to change the rhetoric that it is a burden. The poor may be forced to pay for it but it will benefit them the most we need long-term thinking to break the chain of poverty #BudgetSpeech2018— El Patrón (@Nyamekonondlaz1) February 22, 2018
"This can only be good for households, as it means we may inspire confidence with rating agencies and attract further investments into our economy, allowing opportunities for households to participate in the economy. This primary focus has required the minister to make tough decisions on how to raise money needed by the government," he said.
According to Magosha, this is how Gigaba's announcement impacts the average South African:
- An increase in VAT from 14 percent to 15 percent means that the cost of goods will increase; except for zero-rated "staple" foods such as maize and brown bread.
- There was no adjustment for inflation in the top tax brackets. This means that higher-earning households will pay more tax. Although the tax rates remain unchanged, because income brackets were not adjusted for inflation, this will reduce households' disposable income.
Five of the top decisions taken in #BudgetSpeech2018 IMO:— Verashni Pillay (@verashni) February 21, 2018
1. VAT increase by 1% point to 15%
2. Below inflation personal income tax increase
3. Spending will be cut by R85-billion over three years
4. Free fees allocation of R57 billion
5. R6-billion to drought relief
- The tax burden of higher-income households will be further increased owing to increases in taxes associated with wealthy individuals. For example, a 25 percent estate duty is now payable on estates more than R30-million, and there was an increase of excise duties on luxury goods, like motor vehicles, from 7 to 9 percent.
- Increases in other levies, like the fuel levy and "sin taxes", will mean consumers need to rethink their consumption.
CEO at the SA Savings Institute Gerald Mwandiambira said every South African pays VAT on all items except for essential items, so the impact will be across the board.
"Everything has to be transported, so the fuel levies will impact on the costs of food and goods for example. But the rand has got stronger, so this may cushion the effect of the increase and absorb some of the impact," he said.
In essence, to fund higher education for all poor academically deserving students, we need to radically expand universities to accommodate over 2 million students that need to access higher education. #BudgetSpeech2018— EFF (@EFFSouthAfrica) February 21, 2018
"The Budget will have addressed the concerns of the ratings agencies and international investors. But it hasn't dealt with structural problems in state-owned enterprises. I still believe the poor will be cushioned by the strength of the rand."
Mwandiambira said the announcement of free education will assist both the poor and the "missing middle" class.
"Most of the missing middle now qualifies for free education as well. But anybody who spends more will feel the VAT hike more. The timing is good though."