Here’s what the analysts said on #Budget2018 – a mixed bag

JOHANNESBURG — Analysts have provided differing views on Finance Minister Malusi Gigaba’s Budget Speech on Wednesday. On the whole, many experts have welcomed government’s tough choices on VAT and other cost-cutting measures. However, concerns exist about where the growth will come from. Ultimately, it’s economic growth that will help solve many of the country’s woes, but, at the moment, faster growth is proving elusive. President Cyril Ramaphosa has a huge task on his hands in years to come. Below is a wide compilation of several analysts’ reaction to Budget 2018. – Gareth van Zyl

By Nazmeera Moola, co-Head of Fixed Income, Investec Asset Management

By raising South Africa’s VAT rate from 14% to 15%, the South African government indicated a willingness to take difficult (and unpopular) decisions in order to stabilise the fiscus. Coupled with the recent change in the President, this Budget should be enough to keep Moody’s on hold when they release their South Africa sovereign review on March 22nd. If a good cabinet is appointed in the coming week, it may even be enough for Moody’s also to move the outlook to stable from negative. However, there are two concerns – firstly, that the debt-to-GDP profile does not stabilise for five years, and secondly, the public sector wage settlement that is still being negotiated.

Nazmeera Moola

Overall, Finance Minister Malusi Gigaba presented a plausible, conservative budget with reasonable growth assumptions that focuses on what it is delivering this year rather than making promises of future consolidation. Revenue hikes totalling R36bn are planned for the 2018/2019 fiscal year, anchored by the VAT increase, which will add a projected R22.9bn, and the zero relief for inflation in the top four tax brackets, expected to bring in a further R6.8bn.

In terms of the growth forecasts, the National Treasury’s assumption of growth at 1.5% for 2018 is at the bottom of the consensus range, and there is definite room for upside if half the structural measures announced in President Ramaphosa’s State of the Nation Address materialise.

The main budget forecasts remain higher than we would have preferred, with the primary balance, which excludes interest payments, only moving to zero in the 2020/21 fiscal year. Nevertheless, the improvements are still substantial. The 2018/19 forecast falls from 4.5% to 3.8% of GDP, while the 2020/21 forecast declines from 4.6% to 3.7% of GDP. However, if growth of 3% materialises by late 2020, this alone would move the main budget deficit to 3.4% of GDP in that year.

The improvement in the debt profile, driven by the higher revenue forecasts due to the VAT hike and higher growth forecasts, is encouraging. However, with the debt-to-GDP ratio only peaking in the 2022/23 financial year, we need to see further progress at the Medium Term Budget Policy Statement in October this year.

Contrary to our expectations, there were virtually no cuts to overall expenditure over the medium term. Instead, there is a significant reprioritisation of spending in order to accommodate the R66bn needed in the next three years to fund free tertiary education. This leaves considerable room to cut spending if President Ramaphosa’s planned merger of government departments proceeds. However, the wage increases currently being negotiated with public servants is critical – any slippage from the budgeted wage bills will derail this budget.

President Jacob Zuma releases Heher report on tertiary education fees. More of Zapiro’s magic available at

Ultimately, all our budget woes would be resolved if we could get growth going. For example, if we could achieve a growth rate of 3% in SA the 2020/21 fiscal year, it would push up the primary main budget balance by 0.4 percentage points. Indeed, it should not be out of reach and the Budget Review sets out a breakdown of how GDP growth of 4% could achieved. Assuming baseline GDP growth of 1.5% currently, the following factors could push it to 4%:

  • Improved confidence: +0.5%
  • Telecoms reforms: +0.6%
  • Lower barriers to entry for small business: +0.6%
  • Transport reforms: +0.3%
  • Promotion of agriculture & tourism: +0.2%

The Budget was always going to be a necessary, but not sufficient condition to shoring up South Africa’s one remaining investment grade credit rating and restoring the confidence of households, investors and businesses in the economy. This Budget is good. In light of the political flux it was produced within, it is excellent. It demonstrates the depth of the skills and commitment of the Treasury staff.

The key now is whether the widely expected cabinet reshuffle puts people in charge of key Ministries that produce a regulatory environment that pragmatically encourages investment while taking into account South Africa’s social context. As the Treasury noted, a boost to confidence alone will raise growth by 0.5%. Sectoral reforms will do much more.

Read also: Graham Sell: Tackling issues of land redistribution, the NHI and size of Cabinet

Structural reforms are the key to improving South Africa’s growth outlook. However, it is far more helpful if this takes place in the context of a competitive currency. In 2017, emerging markets experienced inflows of US$100bn into dedicated equity and bond funds. While flows in 2018 have been more volatile, the expectation is that they continue. Therefore it is very clever of the National Treasury and Reserve Bank to loosen exchange controls for institutional funds. The Budget Review noted that offshore limit for institutional funds is increased by 5 percentage points for all categories, including the African allowance. Therefore the African allowance goes from 5% to 10% and the Rest of World category for institutional funds goes from 25% to 30%. Total ex-SA allowance is raised to 40%. This allows savers to continue to diversify their holdings, while likely providing some offset to the likely inflows as South Africa’s potential growth rate rises.

PwC’s tax comments on the 2018 Budget Review: Indirect Tax

Charles de Wet, Head of Indirect Tax, PwC Africa

Increase in VAT rate

pwcThe Minister of Finance announced in his Budget speech that the VAT rate will be increased by 1 % to 15% with effect from 1 April 2018. This increase is expected to raise additional revenue of R22.9 billion.

The result of the aforementioned increase, is that consumers will now pay an additional 1% tax on any purchases of goods or services from VAT vendors. This will have a major impact on households’ already tight budget. The implementation of the VAT increase for businesses may be complex, and the implementation date of 1 April 2018 does not leave much time to allow businesses to effect the necessary system changes and enhancements.

Updated regulation for foreign electronic services

The 2017 Budget Review announced that regulations prescribing foreign electronic services subject to VAT would be broadened to include cloud computing and other online services.

Updated draft regulations prescribing foreign electronic services and supporting amendments to the VAT legislation are to be published on Budget Day for public comment. It is disappointing that the regulations dealing with foreign electronic services have not kept up with international best practice.

Clarification on brown bread

Following recent uncertainty regarding the zero-rating of basic food items, government proposes an amendment to reflect the original policy intent that only brown bread and whole wheat brown bread will be zero-rated, and will not extend to rye or low GI bread.

south africa household budget


The VAT and Income tax treatment of cryptocurrencies will be clarified.

Insertion of the definition of “face value of a debt transferred”

A VAT-registered vendor is permitted to claim a deduction for VAT on taxable supplies that have to be written off. If the vendor cedes or sells the debt that has been written off on a non-recourse basis for an amount that is less than the amount owing, then the sale of the debt is exempt from VAT and the vendor is not required to make any adjustments to the previous VAT deduction. Certain vendors that buy book debt then attempt to claim a further VAT deduction if they write off all or part of this debt in future. This results in a double VAT deduction, which is against the intention of the legislation.

To prevent this double VAT deduction, it is proposed that the term “face value of a debt transferred” be defined in the VAT Act to take into account the policy rationale explained in the explanatory memorandum.

Postponing the abolishment of the zero-rating of the supply of goods and services for the national housing programme

In 2015, amendments were made to the VAT Act to abolish the zero-rating of the supply of goods and services for government’s national housing programme, with effect from 1 April 2017. In 2017, the legislation was amended to postpone the abolishment date for a further two years to 1 April 2019.

Due to budgetary constraints, it is now proposed to postpone the effective date for this amendment indefinitely.

CEO Initiative reaction to Budget Speech

The CEO Initiative is encouraged by the steps taken in the Budget presented yesterday, aimed at achieving fiscal consolidation, balanced with the need to redress our country’s severe socio-economic shortcomings amid a low-growth economic environment.

Jabu Mabuza

“We realise the trade-offs and decisions could not have been easy with so many competing priorities, but given the severity of our challenges, we all need to sacrifice in some way to ensure the long-term stability of our fiscal position and avert further credit rating downgrades,” says Jabu Mabuza, Convenor of the CEO Initiative.

Fiscal consolidation

Going into this budget, South Africa’s most pressing crisis was to achieve fiscal consolidation, by addressing the unsustainable accumulation of debt, closing in on the fiscal gap and accelerating growth.

“In this regard we welcome the plans towards the stabilisation of debt-to-GDP to 56.2% by 2022/’23 fiscal year, as well as the lowering of the consolidated deficit over the next three years to 3.5%. While there is room to reduce these elements further, we believe it is a positive start to improving our long-term fiscal outlook,” says Mabuza.

The downward revision of the expenditure ceiling is encouraging, and we particularly welcome the comments by the Minister of Finance regarding the need to rein in public sector borrowing, as well as the higher projections for GDP to 1.5% for this year.

Malusi Gigaba gestures as he speaks during a news conference after presenting his first budget to parliament on May 23, 2017. Photographer: Halden Krog/Bloomberg

“We acknowledge that the decision to increase VAT would not have been an easy one for any emerging economy in a time of low economic growth, but we commend the National Treasury for the bravery in taking the difficult decisions necessary for the long-term health of our country’s finances. This has been softened by an increase in social welfare spending and more inflation-adjusted tax relief for those taxpayers in the lower earnings brackets,” says Mabuza.

The CEO Initiative also commends the ongoing measures against corruption and wasteful expenditure in government departments and municipalities, such as supply chain management strengthening.

Commitment to enhancing growth

Over the past two years the CEO Initiative has been engaging labour and government on measures to improve economic growth in a sustainable and inclusive manner. In this regard, we welcome the prioritisation of expenditure towards growth-enhancing and employment-creating measures, such as small business development and infrastructure growth.

“The work on the SA SME Fund to support high-potential SMEs is in an advanced stage, and this aligns well with the government’s establishment of a R2.1bn fund aimed at supporting small and medium enterprises during the early start-up phase.”

We also welcome the approval of six special economic zones which should enable greater investment and employment creation in the manufacturing sector.

“In addition to this, the CEO Initiative has engaged extensively with labour and government on measures to revive the manufacturing capacity in the Vaal Triangle,” says Mabuza.

Clarity on funding mechanisms of social programmes

“We are well aware of our country’s significant social challenges, and as such business supports the government’s objectives of expanding access to tertiary education, quality healthcare and comprehensive social security. However, we have always maintained that this has to be done in a responsible manner,” says Mabuza.

The CEO Initiative welcomes the clarity from the National Treasury regarding the extra funding for the National Health Insurance over the next three years, as well as the funding to be provided for fee-free higher education.

Revenue-collection strengthening

We look forward to the proposed response to the recommendations of the Davis Tax Commission, but we await further clarity on the timelines for the Commission of Inquiry into tax administration and governance at SARS, as communicated by the president last week.

SOC reform

We welcome the Minister’s comments on the reforms required at state-owned enterprises, in order for these organisations to become self-sufficient and not dependent on the government for financial support and rescue.

“It is encouraging that the proposed measures go beyond mere bail-outs, but include equity investment, disposing of non-core assets and strategic equity partners,” says Mabuza.

The CEO Initiative remains committed to working with labour and the government in achieving sustainable and inclusive growth that benefits all who live in South Africa. We echo the comment by the president last week in the State of the Nation Address, as well as by the Minister in yesterday’s speech, that now is the time for everyone to lend a hand in rebuilding and strengthening our economy.

Chamber of Mines notes Budget Speech

The Chamber of Mines welcomes the 2018/19 national Budget delivered today by Finance Minister Malusi Gigaba as a tough but necessary one that reinforces President Cyril Ramaphosa’s drive to stabilise the economy and get crucial sectors of the economy back on track.

The government had to make a set of tough choices on fiscal policy, and while the tax policy measures announced today may be painful, the Chamber is of the view that these are necessary to stabilise investment ratings in order to encourage investment going forward. In due course government will have to take steps to incentivise higher levels of investment through greater tax competitiveness compared with South Africa’s peers.

File photo of a general view of Driefontein Gold Mine shaft, near Carletonville, South Africa.

The Chamber welcomes the diagnosis on the difficult state of the mining industry, and the Minister’s reinforcement of the commitment expressed by President Ramaphosa in his State of the Nation address last week to allow parties the space to engage as part of a co-operative, multi-stakeholder effort to address the policy and regulatory uncertainty that has afflicted the industry in recent years.

The Chamber is looking forward to working with all stakeholders including government, organised labour and representatives of mining communities in formulating a social compact that will ensure the future sustainability of the industry and will allow the mining industry to achieve its full economic and transformational potential.

The budget speech also reinforced President Ramaphosa’s commitments to reviving the state-owned enterprises, whose decline due to poor governance and deep corruption have had serious impacts on the sustainability of the economy in general and our industry in particular.

Chamber members have indicated that should South Africa succeed in returning to the top 25% of mining jurisdictions in terms of regulatory attractiveness as outlined by the Fraser Institute, the country is likely to see an almost doubling of investment in the sector over the next four years.

This would have profound positive economic consequences, including the creation of 150,000 new direct and indirect jobs. All stakeholders must work together to develop a vision of what good looks like for the mining sector and agree to a social compact which will form the necessary foundation towards reviving and building a growing, vibrant and more transformed South African mining industry.

PAC comment on Budget 2018

The Budget speech confirms that the poor/landlessness are in need of a friend and that friend have been there for many decades, its PAC. That is why since its inception, the PAC has always been oppressed and
suppressed by various institution, we are now silenced by Baleka Mbete as a Speaker by defying the wishes of the PAC to have our own representative in the legislature and not her favourite Luthando Mbinda.

The PAC notes the Budget speech as presented by Minister Malusi Gigaba in the National Assembly yesterday. The speech lacks an element of hope for the majority of poor landlessness African people in occupied Azania (SA).

The 1 percent increase of Value-Added-Tax (VAT) as proposed by the Minister is a sign of a war waged towards the poor citizens of our country. We are finding it absurd and laughable that the poor should be
held liable for irresponsible, reckless corruption committed by the filthy rich politicians and tenderpreneurs.

Credit ratings downgrade. More magic available at

It is a public knowledge that our state-owned-enterprises (SOEs) are ICU (Intensive Care Unit) with suggestion of other liberal opportunist to commercialise and privatize power supply, Eskom. Those opportunist liberal want the SAA also to be sold to private hands, PRASA is in a rubbish state that it is incapacitated to transport people to their workplace or students to their institutions. We are now told that government must sell its Telkom stake so that they are able to save other entities, you rob Paul to pay Peter? The rapid decline of entities such as Steinhoff signals that greedy is at it’s highest point.

While we partially agree that President Ramaphosa’s State of the Nation Address was inspiring and promising a new country but the Budget speech negates and contradicts all that happened last week Friday. Ramaphosa promised the poor a better South Africa while Ramaphosa counter that by blowing the poor in the face.

The rich continue to be protected and prevented to pay for tax while our government have taken an anti-poor policy to tax and outstrip the poor every cent they happen to have. We are in a situation in the country
where the employees are working for peanuts which only allows them to buy food and ticket for fare to work, our people are subjected to that for all their lives and they die poor.

The PAC is calling for the parliament to conduct a thorough investigation before they could adopt or bless this anti-poor budget. We are not going to allow a situation when the poor are continuously attacked through capitalist-oriented policies which seeks to take away everything from our people.

It is still clear to the PAC that that Budget was drafted and codified for the rich, it never talked even a sentence to the poor. There is no logic to say that you increase social welfare by less than R90.00 and yet you still increase their daily basic needs commodities, it is hooliganism.

OUTA: Where’s the plan in #Budget2018, Minister Gigaba?

Taxes are up again, but clear plans and interventions for the recovery of state-owned entities are missing.

Budget 2018

“The last few weeks have brought a new sense of hope to the country with the change in leadership and clear actions that signal the address of corruption and maladministration. However, Budget 2018 leaves OUTA concerned about the practical implementation of the promises,” says Ben Theron, OUTA’s COO.

OUTA is concerned that there is a significant increase in state spending — including an increase in the cost of the executive — but Minister Gigaba hasn’t given us a comprehensive plan to eliminate systematic corruption or even costed a budget yet for the already running commission of inquiry into state capture.

“Minister Gigaba is still trying to mislead society by conveniently spouting vague promises without giving clear action to implement them. The extension of guarantees in SOEs such as Transnet, Eskom and SAA, whilst necessary for stability, fails to address the plans to rebuild these institutions and stop future guarantees. The hints of privatisation of SOEs is encouraging and, in this regard, SAA should be disposed of as soon as possible.”

The coffers are still running dry. More magic available at

Minister Gigaba has missed an opportunity to shed light on plans to get our economy growing again. The vague statements on the stabilisation of balance sheets of SOEs provide no certainty or confidence that further bailouts will be avoided. SANRAL is to be recapitalised, which underlines the failure of e-tolls.

OUTA is disappointed at the lack of clarity on Government’s commitment to reduce waste and eliminate underperforming programmes to address the deficit. OUTA is pleased to see that the Minister managed to find the money to get the free higher education promise started, but he seems to have forgotten that those students will soon need jobs.

The constant increase in personal income tax puts more strain on overburdened taxpayers. The plan to adjust medical aid tax credits to fund a very vague National Health Insurance plan will place taxpayers in a worse position.

“Taxpayers are sick and tired of seeing taxes increase year after year without material improvement in governance. Any increase in the tax burden on society is extremely frustrating against the backdrop of rampant maladministration and corruption,” says Theron.

Wayne Duvenage

“We’re positive that President Cyril Ramaphosa will take state capture seriously and reduce corruption. As such, we see the Budget and tax increases as a necessary bitter pill to swallow, courtesy of Jacob Zuma and his ineffective Cabinet,” says Wayne Duvenage, OUTA CEO.

“We trust that government will now be put to task to reduce spending and waste, in order to ensure there are no further increase in taxes in 2019.”

OUTA intends to keep watch on the Budget promises and spending.

“Minister Gigaba, in your speech by saying we must fight corruption and maladministration. Lead by example and resign,” says Theron.

Bravura Holdings Limited: 2018 Budget relies on increased growth prospects to balance the books

Current Finance Minister Malusi Gigaba delivered South Africa’s 2018 Budget in a more positive atmosphere given that Cyril Ramaphosa has been sworn in as State President last week. However, was he able to address the glaring revenue shortfalls, ever-increasing debt to GDP and threat of Moody’s following in the steps of Fitch and S&P Global with a downgrade of South Africa’s local debt to junk status?

Kemp Munnik, Head of Structured Solutions at Bravura, an independent investment banking firm specialising in corporate finance and structured solutions, comments that this Budget was keenly watched by local and international investors given the political change that took place recently, especially against the backdrop of the allegations of state capture. The 2018 Budget was essential to restore the credibility of the Annual Budget and the medium-term expenditure framework (MTEF).

The MTEF is significant because it provides insight into planned government expenditure and indicates expected tax increases that South African taxpayers have to face. It also informs decisions of the credit rating agencies about South Africa’s fiscal stability.

Revision of growth forecast
Flag map of South Africa

The South African economy has slowed down significantly in recent years. During the last quarter of 2016 and the first quarter of 2017 it even retracted into negative territory.

Gross domestic product growth of 1% is now expected for 2017, up from 0.7% projected in October 2017. The National Treasury projects real GDP growth of 1.5% in 2018, 1.8% in 2019 and 2.1% in 2020.

The economy has benefited from strong growth in agriculture, higher commodity prices and, in recent months, improving investor sentiment and a stronger rand.

The global economy continues to provide a supportive environment for expanded trade and investment. World economic growth is at its highest level since 2014 and continues to gather pace. GDP growth is rising across all major economies. The global economic recovery provides a supportive environment for South Africa to expand trade and investment, but domestic constraints that have reduced business confidence stand in the way of accelerated growth.

Revenue shortfall and increase in taxes

There have been revenue shortfalIs in four out of the past five fiscal years, mainly as a result of disappointing economic growth. The cumulative shortfall is about R60bn. The 2016/2017 shortfall was R30bn — the worst revenue performance since the global financial crisis.

Minister Gigaba has now announced a projected revenue shortfall of R48.2 billion in 2017/18, which is R2.6 billion less than the October 2017 estimate. He has therefore announced an increase in value-added tax from 14% to 15%. He will also maintain the top four personal income tax brackets with no inflationary adjustment to eliminate fiscal drag. These two measures will raise an additional R36 billion in 2018/19, enabling government to narrow the revenue gap.

The 2018 Budget proposals will increase the gross tax-to-GDP ratio from 25.9% in 2017/18 to 27.2% in 2020/21. Social grant payments will increase faster than inflation to offset the effect of higher taxes on poor households. 

Recognition that corporate tax rate cannot be increased further

In a significant step, the 2018 Budget recognises that a corporate tax rate of 28% is affecting South Africa’s global competitiveness. The world experiences falling corporate income tax rates in advanced and middle-income countries. This trend limits the room to increase (or even maintain) the corporate tax rate. Corporate income tax contributes more as a share of GDP in South Africa than in most other countries. Within the Organisation for Economic Cooperation and Development (OECD), only companies in Chile contribute a higher share.

The global trend to reduce corporate income tax rates includes countries that maintain strong investment and trading ties with South Africa. The United States, for example has reduced its rate from 35% to 21%, the Netherlands from 26% to 21%, and the United Kingdom from 30% to 19%. China’s corporate income tax rate is 25%. While some African countries have similar or slightly higher tax rates, these are often effectively reduced with incentives and/or tax holidays.

The Budget Review recognises that South Africa is becoming an outlier, providing an unintended incentive for companies to shift profits abroad and pay lower taxes elsewhere. In recent years, government has taken steps to avoid erosion of the corporate tax base and prevent profit shifting, and to remove or redesign wasteful tax incentives. In addition to effective anti-avoidance legislation and adequate enforcement capacity, this requires policy decisions that do not undermine investment and competitiveness.

Government debt

If government expenditure exceeds revenue, the difference must be borrowed, which adds to the level of government debt. This implies that the government’s burden on the economy (total government debt as percentage of gross domestic product) will increase. Certain economists have commented that SA has entered an unsustainable debt spiral.

A collection of mixed denomination South African rand coins and banknotes sit in an arranged photo. Photographer: Waldo Swiegers/Bloomberg

The Budget Review recognises that increasing taxes in a low-growth context, when many South Africans are struggling to make ends meet, is not desirable. However, the fiscal position is substantially weaker than it was at the time of the 2008 financial crisis, when South Africa had a gross debt-to-GDP ratio that was just above 26%. That ratio now stands at 53.3%. A failure to act now would lead to more drastic spending cuts and tax increases in future.

Gross loan debt, which in the October 2017 projections was set to breach 60% in 2021/22, is now projected to stabilise at 56.2% by 2022/23. The combination of higher GDP growth, a narrower deficit, a stronger currency and lower borrowing rates results in this improved debt-to-GDP outlook.

Expenditure cuts

In November 2017, in response to the deteriorating fiscal outlook, a Cabinet sub-committee identified medium-term spending cuts amounting to R85 billion. About R53 billions of this amount has been cut at national government level, including large programmes and transfers to public entities. At subnational level, conditional infrastructure grants of provincial and local government have been reduced by R28 billion. In addition, all national and provincial departments were required to reduce their spending on administration. The reductions exclude compensation of employees, which is already subject to a ceiling. 

Recognition that cut in public sector wage bill is required

Government recognises the need to shift spending away from consumption towards capital investment.

To support higher levels of capital investment, the state needs to contain the public-service wage bill, which has crowded out spending in other areas. The level and rate of growth in remuneration is of concern. Cost-of-living adjustments that consistently exceed consumer price inflation continue to put pressure on departmental ceilings.

Improving the composition of spending will require renewed efforts by government to manage the public-service wage bill. According to the Organisation for Economic Cooperation and Development (2017), South Africa’s government wage bill is one of the highest among developing countries country peers. The consolidated wage bill increased rapidly from 32.9% of spending in 2007/8 and remains at about 35% of total expenditure in 2017/18.  Departments will need to continue paying careful attention to managing headcount levels.

The 2018 Budget mentions that government is working to ensure that the current wage negotiations process results in a fair and sustainable agreement. 

R57 million budgeted for free higher education and training

Over the next three years, more than half of government spending will be allocated to basic education, community development, health and social protection.

Funding for fee-free higher education and training will amount to additional spending of R57 billion over the medium term.

There is a provisional allocation in 2018/19 of R6 billion for drought management, assistance to the water sector, and to improve the planning and execution of national priority infrastructure projects.

The burden of state owned enterprises (SOEs) on the South African economy

The Budget recognises that the financial risks posed by the broader public sector remain significant. The Budget Review makes it clear that any additional commitment of public resources to state-owned companies will be associated with far-reaching governance and operational interventions – including, where appropriate, private-sector participation.

The following steps have already been implemented:

  • A new board and acting chief executive officer have been appointed at Eskom.
  • The Minister of Energy has instructed Eskom to conclude all power-purchase agreements with independent power producers.
  • Government has granted South African Airways R10 billion to settle its short-term debt obligations. A new board, chief executive officer and restructuring officer have been appointed. A turnaround strategy is being implemented.
  • Cabinet has approved a private-sector participation framework for state-owned companies.
  • The Competition Commission’s market inquiry to investigate data prices will be complete by end-August 2018.
  • Draft legislation is being prepared to allow Postbank to apply for a banking licence. The National Treasury and the Department of Telecommunications and Postal Services have met the Banking Registrar to discuss a Postbank structure.

Main tax proposals for 2018/19:

  • A one percentage point increase in VAT to 15%.
  • 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% for estates above R30 million.
  • Increases in the plastic bag levy, the motor vehicle emissions tax and the levy on incandescent light bulbs to promote eco-friendly choices.
Glimmer of hope?

The 2018 Budget is introduced as government has an opportunity to reinforce confidence and contribute to a recovery in growth and investment. A renewed sense of optimism is driven by the expectation that government will finalise many outstanding policy reforms, act decisively against corruption, and swiftly resolve governance and operational failures at state-owned companies. Investor sentiment has improved, leading to a strengthening rand exchange rate and lower government borrowing costs.

The rand strengthened significantly against the US dollar during 2017 and the first part of 2018, reaching R11.64/US$ today – a level last seen in 2014. The currency’s recent performance reflects investors’ reaction to domestic political developments, as well as overall strength in developing-country currencies. These currencies benefited from US dollar weakness, the search for higher yields by international investors and rising global commodity prices.

Recent events suggest an upturn in the business cycle. Statistics South Africa’s December 2017 economic statistics revealed an unexpected improvement in the economic outlook, largely as a result of growth in agriculture and mining. The SACCI business confidence index reached its highest level since October 2015 – and the Absa purchasing managers’ index its highest level since January 2010.

South Africa’s potentially stable macroeconomic environment provides a strong platform to attract much-needed foreign savings that can fund additional investment. The country’s prudent macroeconomic policies are highly regarded by international investors, as are its well-developed and well-regulated financial markets. If Budget 2018 stands as a commitment by government to practice sustained fiscal discipline, this could certainly steer South Africa’s economic fortunes in the right direction. We’re well advised to keep watching this space.

IRR: Budget 2018: Too little to restore growth

South Africa’s 2018 Budget might help avert an imminent downgrade, but the reprieve would be temporary unless President Cyril Ramaphosa and his Cabinet commited to a profound change in policy direction, according to IRR CEO, Frans Cronje.

The “medium-term expectation for South Africa to continue underperforming regional and emerging market growth averages by around 50%” was concerning, as current growth projections “will put paid to the prospect of a medium-term employment uptick”.

Cronje added that this “reintroduces risks of political instability, and presents a horizon for the Ramaphosa honeymoon”.

The question now was whether President Cyril Ramaphosa “can translate his political ascension into an economic reformation”.

Mr Ramaphosa and his Cabinet would have to “up their game” to make a compelling case for economic growth.

The VAT increase and fiscal drag measures “will place an even heavier burden on households and consumers, depressing domestic spending, and thereby undermining any effort at economic recovery”.

“Mr Ramaphosa has done well over the past eight weeks in raising confidence about the future of South Africa. However, if he is not able to validate and reinforce that confidence with a much more compelling case for reform, it will be in vain.”

Cronje said the Ramaphosa Cabinet’s agenda must include:
– Fundamental deregulation of the labour market to boost job creation;
– Replacing race-based empowerment measures that have largely benefited a politically connected elite but failed to help the poor with a policy directed at giving the masses of disadvantaged people the skills and opportunities presently denied to them;
– Selling off underperforming parastatals; and
– Securing property rights, without which little new fixed investment could
be expected.

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