Search
  • Accrue Staff

BUDGET 2018 – TAX HIKES AND GOVERNMENT EXPENDITURE CUTS

The 21st February 2018, saw the current finance minister, Malusi Gigaba deliver the much anticipated 2018 Budget Speech. Prior to his speech there was much speculation about how he was going to address the seemingly unsustainable path of government debt highlighted in October’s medium- term budget policy statement (MTBPS) and drive much needed fiscal consolidation.


Below are the points we felt to be most key that came out of the budget.


VAT increased by one percentage point.

  • VAT increased from 14% to 15%. The first such change since 1993. This will add additional R22.9 billion of revenue to the Fiscus. This is effectively a net increase of 0.9% in the cost of goods and services that attract VAT

Cuts in government expenditure

  • Over the next three years government spending will be cut by R85.7 billion to narrow the budget deficit and stabalise debt.

Increased estate duty

  • Estate duty which used to be a flat 20%, increased to 25% for net estates over R30million

Increased Excise duties (Sin taxes)

  • Excise duties on alcohol are set to increase by between 6% to 10% while the duties on tobaccoproducts are set to rise by 8.5%

Higher fuel levies(Sin taxes)

  • The general fuel levy will increase by 22 cents per litre while the road accident fund levy will see an increase of 30 cents per litre.

Free Higher Education

  • Government has set aside R57bn to phase in free higher education. The first phase of this is set to begin in 2018 with members of households that earn less than R350 000 annually receiving free tertiary education.

No inflation adjustment for highest income tax brackets

  • Government has kept the tax brackets for the highest four tax brackets constant. This results in a higher effective tax rate for individuals in these brackets.

  • On the other end of the spectrum government has marginally adjusted (3.1%) the bottom three tax brackets upwards to account for some inflation

Of most interest to the investment community was the indication that National Treasury is to increase the prudential limits on offshore investments for funds under management by institutional investors — by five percentage points for all categories‚ including the allowance for investments in Africa.

The limits for collective investment schemes‚ investment managers and long-term insurers will rise to 40% from 35%; and for non-linked long-term insurers and retirement funds to 30% from 25%. This means that Regulation 28 funds will now be able to increase their offshore holding to 30%. An additional allowance is available to all institutional investors for investment in Africa and this is increased from 5% to 10%.

Overall, although the budget will put pressure on the already under strain consumer, it has been seen in a positive light, as these changes highlight the fact that our new leader is willing to make tough political decisions in order to improve the health of the South African economy over the long term.

3 views

Accrue Financial Advisory Services is an authorised Financial Services Provider – FSP 45673

  • Black Facebook Icon
  • Black Twitter Icon
  • Black LinkedIn Icon

Powered by SDB Digital

© 2019 Accrue Financial Advisory Services