These are the main salient points we took from the 2018 budget speech:
1 - Consolidated spending – Consolidated spending will increase from R1.67 trillion in 2018/19 to R1.94 trillion, representing a nominal annual average growth of 7.6%, or 2.1% in real terms. In aggregate, government will be spending R792 billion on basic education, R668 billion on health and R528 billion on social grants, over the medium term.
2. Allocation of funds - This coming fiscal year alone, government has allocated over R200 billion for peace and security and another R200 billion for economic development to build a safer country and to grow our economy inclusively. The largest reallocation of resources towards government’s priorities was on higher education and training, amounting to additional funding of R57 billion over the medium term
3. Growth - Budget is anticipating economic growth of 1.5% in 2018, rising to 2.1% in 2020
4. Tax - The tax proposals for the 2018 Budget are designed to generate an additional R36 billion in tax revenue for 2018/19. The main tax proposals for the 2018 Budget are:
An increase in the value-added tax rate from 14% to 15%, from 1 April 2018. This makes the tax on purchased goods 7% higher.
A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets,
An increase in the ad-valorem excise duty rate on luxury goods from 7% to 9%,
A higher estate duty tax rate of 25% for estates greater than R30 million,
A 52 cents per litre increase in the levies on fuel, made up of 22 cents per litre for the general fuel levy and 30 cents per litre increase in the Road Accident Fund Levy, and
Increases in the alcohol and tobacco excise duties of between 6% and 10%
5. Spending - Over the next three years, the spending framework includes:
1. Expenditure reductions approved by Cabinet amounting to R85 billion.
2. An allocation of R57 billion for fee-free higher education and training
3. Additions to the contingency reserve amounting to R10 billion.
6. Deficit - The consolidated deficit is projected to narrow from 4.3% of GDP in 2017/18 to 3.5% in 2020/21
The main budget primary deficit closes over the medium term, helping to stabilise the gross debt-to-GDP ratio at 56.2% of GDP in 2022/23, and declining thereafter.
7. Infrastructure - Government has established a Budget Facility for Infrastructure, to standardise and improve the management of public infrastructure projects
8. Start-up fund - A fund with an allocation of R2.1 billion over the medium term is being developed between the Departments of Small Businesses, Science and Technology and the National Treasury to benefit small and medium enterprises during the early start-up phase
9. Carbon tax - Parliament is currently considering the draft Carbon Tax Bill, which will assist South Africa to meet its climate change commitments to reduce our carbon emissions. The tax will be implemented from 1 January 2019
10. VAT - An update to draft VAT regulations to cover foreign businesses selling electronic services to South African consumers.
11. Employment incentives - Approval of six special economic zones that will make qualifying companies subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages
12. Conditional fee-free higher education - Government will phase in fee-free higher education and training to students from poor and working-class families. This means that all new first-year students with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study.
13. Schools - Over the medium term, R3.8 billion allocated to the School infrastructure backlogs grant will replace 82 inappropriate and unsafe schools, and provide water to 325 schools and sanitation to 286 schools
The Education infrastructure grant is also allocated R31.7 billion over the medium term to build new schools, upgrade and maintain existing infrastructure, and provide school furniture. Meals will be provided at 19 800 schools for about 9 million learners each school day through the
National school nutrition programme grant, which is allocated R21.7 billion over the medium term
14. Health - Overall, government will be spending R205 billion on health in 2018/19 growing to R240 billion by 2020/21.
15. Social grants - Government has taken deliberate steps to adjust social grant values above inflation to at least partially cover for the proposed increase in VAT, therefore:
The Old age, disability and care dependency grants will increase on 1 April 2018 from the existing R1600 by R90 to R1690 and by a further R10 to R1700 on 1st October 2018.
The Child Support grant will increase from the baseline of R380 to R400 on 1 April and to R410 on 1 October. This is a 6.6% annual increase.
An additional R2.6 billion has been added since the MTBPS to social grants to enable these changes
These adjustments resulted in social protection spending increasing by 7.9% per year, much above inflation.
16. Black producer programme - An estimated R581.7 million is expected to be reprioritised for the black producer commercialisation programme.
To provide short-term assistance, this budget includes disaster relief grants for provinces and municipalities worth R473 million in 2018/19.
17. Dividends and capital gains tax - The dividends tax rate remains unchanged at 20% while the maximum effective capital gains tax rate for individuals stays at 18%.
18. Offshore investing - The offshore allocation limits for institutional investors are increased by five percentage points across all categories. This includes the special allocation to African investments, which will rise to 10 percent.
19. Government suppliers - Government officials not paying suppliers on time to be charged with financial misconduct.
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Dwaine van Vuuren
RecessionAlert, Sharenet Analytics
Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.