Budget deficit to increase?

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What can we expect from the upcoming budget speech on 20 February?

According to law firm Norton Rose Fulbright, we will almost certainly see a short-term increase in South Africa’s budget deficit and debt-to-GDP ratio. We can also expect that stimulating the economy and creating jobs will be high on the agenda of Finance Minister Tito Mboweni – along with restoring the integrity and capacity of strategic state-owned enterprises, and increasing efficiency at the South African Revenue Service.

With the economy at a crossroads, Minister Mboweni is unlikely to increase any of the major tax rates, particularly as this is an election year – although there may be some limited relief for bracket creep, and below inflationary increases for rebates and the medical aid credits. “We expect reducing unnecessary and wasteful expenditure to be a focus area, with a reduction of the government wage bill being mentioned,” the firm predicts. “A tax on carbon will be implemented with effect from 1 June 2019, although it is not anticipated that this tax will contribute much of a revenue stream for the fiscus during the first phase following its implementation.  In the State of the Nation Address, the Minister mentioned that the Employment Tax Incentive will be extended and the National Health Insurance Bill will be introduced.  We expect further clarity in the 2019 budget on how National Health Insurance will be funded.”

Norton Rose Fulbright says the Minister will have to walk a fine line, presenting a budget that will be palatable to the majority of ordinary South African’s and at the same time managing a medium term budget deficit and appeasing the ratings agencies.

In the last three annual budget speeches delivered by the Minister of Finance, we have seen increases in the following taxes:

  • An increase in the VAT rate from 14% to 15%
  • An increased rate of personal income tax, referred to as the new super tax bracket of 45% for taxable income above R1.5 million per annum
  • Significant increases in the general fuel and Road Accident Fund levies
  • An increase in the dividends withholding tax rate from 15% to 20%
  • An increase in the capital gains tax inclusion rates for corporates and individuals
  • An increase in the tax rate applicable to trusts from 41% to 45%
  • Increases in excise duties applicable to tobacco and alcohol products