Budget Speech 2018 - VAT and Reason slaughtered on the Altar of Ignorance

21 Feb 2018 | Ralph M Ertner
Butcher of Finance, Malusi Gigaba

Building on the sense of a new beginning created by President Cyril Ramaphosa’s State of the Nation Address, Zma Sycophant and “still-” Finance Minister Malusi Gigaba’s Budget Speech in the National Assembly on 21 February was all about rebuilding and restoration in challenging times. “This is a tough but hopeful budget," he said at the start of his speech. This is probably a fair comment, seeing that the risks and pressures were also acknowledged by a Finance Minister, who is still in his position based on nepotism and not on qualification or merit. But Ramaphosa saw it fit not to replace the Zuma-Puppets before the delivery of the Budget Speech.

The finance minister noted at first that the economic outlook and indicators have improved since his mini-budget in October 2017, which painted quite a gloomy picture. One wonders if he can really be so naive to believe that this had anything to do with him or his actions. An army from battered small and medium enterprises keep the economy alive, left alone by a corrupt and inept leadership, whose term has finally come to an end with the resignation of Jacob Zuma, who could not even find support anymore amongst his closest friends; …most likely because the Gupta Brother stopped paying them!

The main element of the 2018 National Budget is the first rise in the VAT rate since 1993, from 14% to 15%. Gigaba said the rate is still low compared to some of South Africa’s peers, but he overlooks that the rise is the proverbial slaughter of the holy cow on the altar of desperation and ignorance. The Budget Deficit is not coincidental, it is home-made by financing a bloated administration apparatus with over thirty (sic!) ministries to give an income to incompetent families and friends of a government that could only be compared to a cash-market with self-service! Dishonourable Minister, you ran out of answers as those you found were uncomfortable. It would have meant to radically cut public servants in number and (!) remuneration. But it was the easy way out for a Playboy, who has his whole life spent money that others worked for! Increasing the VAT does not affect the corporate world except under cash-flow aspects, but it hits the bottom of the food chain, where VAT cannot be recovered. For those, all products increase in cost by 1%. The argument that maize mail, samp and dried beans among 19 food items are Zero-VAT rated is a sickening poor attempt to argue “no harm done”!

The lower income earners battle from day to day, trying to eat a balanced diet, which should not be dictated or limited to 19 items by a man, who excels in the consumption of sushi, oysters and champagne! Over and above, those people also try to drive to work every day. Already beaten down by eTolls, the “Butcher of Finance” saw it fit to increase fuel levies and associated contributions by a total of 52 Cents a litre, an insane move given the current economic circumstances and adding on to the burden of those, who are lucky enough to still have work.

Thanks to the VAT increase and massive increase in levies as well as additional estate duty income an additional R36bn of tax will be generated this year, with a limited income tax bracket adjustment for inflation and other measures. Gigaba also elaborates on the fact that “Richer people will pay quite a bit more in estate duty”. This is about the dumbest statement in his speech! The estate duty is not linked to the wealth of heirs, it is linked to the value of an estate. The person, who was rich and left a fortune is surely not the one paying your estate duty, “Minister”! In today’s world it is the heirs, often whole scores of family members, who would have the benefit of eleviating their financial burden, but the Minsiter has rather his burden lifted, no matter who carries it for him from there on!

On the spending side, fiscal consolidation is set to continue with expenditure reductions of R85bn over the next three years, a joke considering that the sale of SAA, closing of Postal Services and SABC would have done the trick. But why taking the salaries away from yet another group of leaders, who bled our national carrier to death and turned the national broadcaster into a circus! To the contrary, the Maniac of Finance wants to sell state assets to fund the losses of SOEs…..speechless!

The allocation for phased-in fee-free higher education amounts to R57bn over the next three years, of which R12.4bn will go towards needy first-year students in 2018/19, Gigaba said in his elusive wisdom. New first-year students with family incomes of below R350 000 per year at universities and TVET colleges will be funded for the full cost of their study in the 2018 academic year. Here Gigaba continues the tradition of “entitlement” and provides those funds, he just took from the lowest income-earners to offer free education! Dear Minister of Fantasy, such a move can be done out of a position of strength, not weakness. We were all dumb-founded witnesses when we saw those “protesting students” breaking into the universities looting kitchens and cantinas. It is those culprits and their lawless behaviour, which you reward. You capitulated like a blackmailed adulterer! Like the rest of this country’s leadership, you seem to have a real problem with understanding what law and order mean and that rewarding criminals should be reserved only for the current cabinet (to be dismissed soon!).

The state’s contingency reserve will also be strengthened, with a provisional allocation of R6bn set aside in 2018/19 and R10bn over three years for, among others things, drought relief and augmenting public infrastructure. Social grants were increased by an average of about 7%.

Debt Reduction

Gigaba stressed that bringing down debt levels is important, saying: “We dare not borrow irresponsibly, leaving it to future generations to repay.” Plain lip service as the ANC – like so many socialist governments world-wide – eliminated all clean balance sheets so carefully implemented by Trevor Manuel. Borrowing is the instrument of desperation and convenience and was part of the last decade’s fiscal policy.

The consolidated budget deficit is projected to narrow from 4.3% of GDP in 2017/18 to 3.5% in 2020/21, so he says, but how? The budget cannot be described as balanced and responsible under the circumstances and is not designed to put the South African fiscal position on a healthy path. Wasted government expenditures, corruption, tender billions embezzled and a head-heavy greedy leadership and public administration are the areas of concern but the Budget failed to address same in toto! However, here are the (uncommented) “highlights” of the Budget Speech:

Macroeconomic Outlook

GDP growth of 1% is expected for 2017, up from 0.7% projected in October. Growth of 1.5% is forecast for 2018 and, according to the Treasury, will reach 2.1% by 2020.
The economy has benefited from strong growth in agriculture, higher commodity prices and, in recent months, an upturn in investor sentiment.
The global economic recovery provides a supportive environment for South Africa to expand trade and investment. The government will implement structural reforms to promote investment by reducing policy uncertainty and promoting good governance and sound financial practices at state-owned enterprises (SOEs), the budget review stated.
Exports are expected to grow by 3.8.% in 2018, 3.4% in 2019 and 3.5% in 2020, after estimated negative growth in 2016 and an estimated increase of 1.5% last year.
Consumer inflation, which reached 6.3% in 2016, is expected to fall to between 5.3% and 5.5% in the years 2017 to 2020.
The current account deficit, after reaching 4.4% in 2015, will come down to an estimated 2.3% in 2018, 2.7% in 2019 and 3.2% in 2020.
Gross fixed-capital formation continued to decline in 2017 and unemployment reached the highest level recorded since 2003, the review states.
Budget framework

The consolidated budget deficit crept up to 4.3% of GDP in 2017/18 (3.1% budgeted last February). This was due to less than expected revenue being collected (R48.2bn against R50.8bn still estimated in October’s mid-term-budget). The deficit is expected to narrow to 3.5% in 2020/21. Net state debt is still creeping up, but expected to stabilise at 53.2% of GDP in 2023/24. It is the first time this estimate exceeds 50%. Main budget non-interest expenditure is projected to remain stable at 26.6% of GDP between 2017/18 and 2020/21.

An additional R36bn (R28bn last year) of tax revenue will be raised by proposed measures in 2018/19.
The fiscal framework reflects two major changes that followed the mid-term budget: medium-term expenditure cuts identified by a Cabinet subcommittee amounting to R85bn, and an additional allocation of R57bn for fee-free higher education and training.

Contingency reserves have been revised upwards to R26bn over the next three years. Real growth in non-interest spending will average 1.8% over the next three years. Post-school education and training is the fastest-growing category.
Specific spending programmes over the next three years

Over the next three years, government will spend:

  • R528.4bn on social grants.
  • R324bn is provided for higher education and training, including R57bn of new allocations for fee-free higher education and training.
  • R792bn (R707.4bn was the figure quoted last year) will be spent on basic education, including R35bn for infrastructure and R15.3bn for learner and teacher support materials, including ICT.
  • R123.3bn (R114bn) on subsidised public housing.
  • R125.8bn (R94.4bn) on water infrastructure and services.
  • R207.4bn (R189bn) on transfers of the local government equitable share to provide basic services to poor households.
  • R667bn (R606bn last year) on health, with R66.4bn (R59.5bn last year) on the HIV/Aids and TB conditional grant.
  • R129.2bn to support affordable public transport.

Tax proposals

The Value-added Tax rate will increase from 14% to 15% from April 1 2018. R6.8bn will be raised from partial relief for bracket creep.

Ad valorem excise duties for luxury goods such as motor vehicles will be increased.

Estates above R30m will now be taxed at a rate of 25%, instead of 20%.

The plastic bag levy, motor vehicle emissions tax and the levy on incandescent light bulbs will be raised to promote eco-friendly choices.

A health promotion levy, which taxes sugary beverages, will be implemented from April 1 2018.

The general fuel levy will increase by 52 cents per litre on April 4 2018. This will push up the general fuel levy to R3.62 per litre of petrol, after a hike of 30c/litre last year.

Personal income tax will bring in R505.8bn, VAT R348bn and company tax R231bn in the 2018/19 financial year.

Consumers of alcohol products will pay between 6% and 10% more for their habit. The increase on tobacco products is 8.5%.

Social Grants

The specific increases in the different grants are:

  • State old age grant from R1 600/month to R1 695.
  • State old age grant for over 75s will be increased from R1 621 to R1 715.
  • War veterans grant will go up from R1 620 to R1 715.
  • Disability grant will increase from R 1 600 to R1 695.
  • The foster care grant is set to go up from R920 to R960.
  • The child care dependency grant is set to rise from R1 600 tot R1 695.
  • The child support grant will be increased from R380 to R405.
  • Allocations of R4.2bn for national health insurance will be funded through adjustments to the medical tax credit.

Selling of State Assets for additional funding of SOEs

A property audit conducted by the Department of Public Works has shown that national government owns up to 195 000 properties, with an estimated value of over R40bn. Gigaba said government will work on a programme for the more efficient utilisation or disposal of these properties in the short to medium term. Government may be required in the coming year to provide financial support to several SOEs. This could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections, Gigaba said in his speech.

Time for tissues! Sad Affairs but Kudos on how he pulled the wool over everybody’s eyes!

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