Budget speech may be just enough to help avoid a downgrade: Absa

Rand weakens along with emerging markets

Rand weakens along with emerging markets

"This is a tough, but hopeful budget", Finance Minister Malusi Gigaba said, acknowledging the reality in his budget speech to parliament on Wednesday.

The excise duty rate on luxury goods rises two percentage points to 9 percent, while a higher estate duty tax rate of 25 percent will be imposed on estates greater than R30-million. We are therefore exploring the option of partially mitigating losses by temporarily increasing intake in the Working for Water programme.

"While the one percent increase in Value-Added Tax was necessary, we are aware that it will be a drag on consumer spending, a major source of economic activity in South Africa".

Gigaba said the current zero-rating of basic food items such as maize meal, brown bread, dried beans, and rice will limit the impact on these households.

"Considering this, the smaller increase was a reasonable decision", it said, adding that businesses and consumers would also feel the effect of an increased fuel levy. "This means that all new first-year students with a family income below R350 000 a year at universities and technical and vocational education and training colleges in the 2018 academic year will be funded for the full cost of study", he highlighted.

The banking association applauded the renewed commitment to good governance in the public service - especially the South African Revenue Service - and state-owned enterprises, but said much more needed to be done to recover billions of rand lost to corruption and fruitless and wasteful expenditure.

Although the economic growth outlook has improved, growth remains elusive and GDP is only expected to expand by 1.5% in 2018, compared to treasury's earlier projection of 1.1%. This is part of the Treasury's attempt to shrink its budget deficit, which stands at 4.3 percent of gross domestic product (GDP) in the 2017/18 fiscal year. "With the state of affairs in our country, high unemployment and inequality, too many people depend on incomes of individuals to survive", the EFF said.

Tabling the Budget in Parliament, Gigaba stated that as government was still faced with a revenue gap of R48.2-billion, a number of significant changes had to be made to meet the this increased allocation, with new tax measures being implemented to raise an additional R36-billion in 2018/19.

Gigaba said NSFAS funding for returning students would be converted into bursaries.

However, Gigaba will still need to walk a fine line going forward, as ratings agencies will be actively watching how well the country is able to stick to his budget, said Jacques du Toit, senior property economist at Absa Home Loans.

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