FINANCE Minister, Malusi Gigaba, tabled the 2018/2019 budget speech and highlighted on how the country’s funds will be spent.
He pointed out that extraordinary measures have to be taken in order to stabilise the public finances.
“Without such measures, we would only delay the debt estimate, and a growing share of spending would be absorbed by interest payments,” he said
Gigaba said there are expenditure cuts that were identified by a cabinet subcommittee which amounts to R85 billion over the next three years.
He further mentioned that maintaining the top four tax brackets would raise an additional
R36 billion in 2018/19,that would enable government to narrow the revenue gap.
Over the next three years, government will spend:
• Spend an amount of R12.4 billion in 2018/19, R20.3 billion in 2019/20 and R24.3 billion in 2020/21. This is in addition to a R10 billion provisional allocation made in the 2017 Budget.
• R4.2 billion will be spent for national health insurance funded through adjustments to the medical tax credit, R490 million to establish the Tirisano Construction Fund Trust and R1 billion for the 2021 Census.
• An additional amount of R2.6 billion to enable an above-inflation increase to social grants to partially offset the impact of tax increases on the poor.
• A provisional allocation of R6 billion set aside in 2018/19 for drought relief in several provinces, assistance to the water sector, and public investment projects supported by improved infrastructure planning. These allocations will be considered in the Adjustments Budget process.
• Additions of R5 billion in 2018/19, R3 billion in 2019/20 and R2 billion in 2020/21 for fiscal risks and unforeseen developments, bringing the total contingency reserve to R26 billion over the medium term.
The main tax proposals for 2018/19 are:
• A one percentage point increase in VAT to 15 per cent.
• No adjustments to the top four income tax brackets, and below inflation
adjustments to the bottom three brackets.
• An increase of 52c/litre for fuel, consisting of a 22c/litre increase in the
general fuel levy and 30c/litre increase in the Road Accident Fund levy.
• Higher ad valorem excise duties for luxury goods.
• Increased estate duty, to be levied at 25 per cent for estates above
Gigaba said an appropriate balance is required as VAT is an efficient, certain source of revenue provided that its design is kept simple.
“Increasing the VAT rate by one percentage point is estimated to have the least detrimental effects on economic growth and employment over the medium term,” Gigaba said.
According to the minister, the zero-rating of basic food items mitigates the effect of the increase on poor households, which with limited adjustments to personal income tax brackets continue the progressive steepening of the income tax curve.