How government will raise R36 billion in revenue:
Spending will cost more
Government has taken the step to increase the VAT rate from 14% to 15%, raising an additional R22.9bn to meet the fee-free higher education costs and reduce debt. This does not apply to 19 basic food items which include dried beans, samp, maize meal, rice, and brown bread. Note however, that National Treasury has deemed low-GI bread and rye bread as non-essential food items and VAT will now apply.
A sugar tax is to be introduced and although the details have not yet been released, this is expected to raise an additional R1.9bn as a “health promotion” levy.
The excise duty on luxury items will increase from 7% to 9%; this includes cosmetics, electronics, smartphones and golf balls. Excise duty on motor vehicles increases from 25% to 30%. There are also increases on plastic bags and incandescent light bulbs, and ‘sin taxes’ will see increases of between 6% to 10%.
All these increases will be in addition to the VAT increase, so expect your budget to feel the pressure. These are all effective from 1 April 2018 so if you were planning on spending, you may want to do it now.
Don’t be fooled by “no increase in personal tax”
After the addition last year of an extra 45% tax bracket and percentage increases in marginal tax rates in 2016, no further personal income tax increases have been announced. However, the top four tax brackets will receive no relief from fiscal drag – in other words the tax tables will not be adjusted for inflation, while lower tax brackets will only receive partial relief. This will effectively cost income tax payers an additional R6.8bn, raising the total amount collected in personal income tax to nearly R506bn. For example, an individual earning R550 000 a year receiving an inflation-adjusted salary increase of 6% would pay an additional R8 577 in tax.
Filling up your car will be more expensive
The increases to the fuel levy and Road Accident Fund levy are significant, increasing by 22c/l and 30c/l respectively. The fuel levy increase will add R1.22bn to government revenue. This means a 50-litre tank of petrol will cost you R26 more. This brings the amount of tax we pay on fuel to R3.37/l for petrol and R3.22/l for diesel – so in total you are paying R168 in fuel levies and R96.50 to the Road Accident Fund each time you fill up.
Estate duty wealth tax
Given significant increases in capital gains tax and dividend withholding tax in the last few years, no further increases on investment taxes were announced. However, estate duty on estates worth more than R30 million will be increased from 20% to 25%. To limit the staggering of donations in an attempt to avoid the higher estate duty rate, donations above R30 million in one tax year will also be taxed at 25%. This is expected to raise R150 million in additional tax.
Medical scheme tax credits phasing out
Although National Treasury has not scrapped the medical scheme tax credits, it is providing less-than-inflationary adjustments. Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of national health insurance (NHI). The medical tax credit increases from R303 to R310 (2%) for the first two beneficiaries, and from R204 to R209 (2.5%) for remaining beneficiaries.
What government will spend on:
Fee-free higher education and training
This year R34.9bn will be transferred to universities and R22.8bn to the National Student Financial Aid Scheme (NSFAS).
As announced in the State of the Nation address, 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. This will be rolled out in subsequent years until all years of study are covered. Returning NSFAS students at university will have their loans for 2018 onwards converted to a bursary.
Over the next three years, R57 billion will be spent on higher education and training; this is the fastest-growing spending category, at an annual average growth of 13.7%. As the increases in tax revenue will not be sufficient to cover this, there will be cuts to other areas of government spending.
Increase in social grants
In order to offset the increase in VAT, an above-average increase in social grants was announced. The old age, disability and care dependency grants will increase by R90 to R1 690 on 1 April and by a further R10 to R1 700 on 1 October. The child support grant will increase from R380 to R400 and then to R410 in April and October respectively. This year a total of R259bn will be spent on social development.
NHI to get more funding
Over the next three years, an additional R4.2 billion will be allocated to the rolling out of NHI, funded by amendments to the medical expenses tax subsidy.
Boost to small business
R2.1bn will be allocated over the next three years to a small business fund developed between the departments of Small Business, Science and Technology and the National Treasury to benefit small and medium enterprises during the early start-up phase.
Still too much goes to debt
Debt-servicing will cost government R180bn this year and is expected to increase to R197bn next year. This represents over 10% of the total expenditure by government and is almost equal to how much we spend on healthcare. Government debt for 2018/19 will reach R2.7 trillion ‒ equal to 55% of our annual GDP.
This article first appeared in City Press Online.