2018 Budget Speech Expectations
Each year, in February, the Minister of Finance has to deliver a speech setting out the plan how the government will be spending money for the year. He also reviews the country’s debt situation and how the government plans to raise funds to cover all their costs (and hopefully reduce debt).
This year Minister Gigaba will deliver the speech (should a cabinet shuffle not hit before then – which would be unlikely) just as the ruling party leadership has officially changed camps.
Bad Economic Growth Lead to Less Tax Income
The economy was hit hard last year meaning the many tax paying individuals in the country all earned less and thus less tax was recovered (somewhere between R50 Billion and R90 Billion short). This meant that the government ended up with a lot less money than they had thought they would.
Free Education For A Year?
Last year, in a bid to win favour with supporters and in what some say is an effort to leave a positive legacy, former President Jacob Zuma made promises of free higher education for some. This followed after several years of disruptive and destructive #feesmustfall campaigning and protests at universities around the country. Recently the new President Cyril Ramaphosa confirmed that this endeavour will go ahead and may be aimed at first-year students who come from households that earn less than R30 000 a month.
Plans of how this might be accomplished were touted and the bills could run into the billions of Rands each year (remember Universities are businesses who want money for their services and certificates). This is a very ambitious plan in a country with notoriously very poor basic education and sadly even worse financial literacy levels. It may, however, see a mostly unemployable range of young people (unemployment levels for those leaving school are around 50%) try out university for at least a year and encourage some families to take on loans to then further their studies. This may then benefit credit providers in years to come (though university graduates are even less employed than all other categories of workers so recovering funds down the line may be challenging).
This means that, in addition to trying to cover the already huge income shortfall of last year, the Minister has to announce where the additional billions will come from. No easy task and one that can only leave most people upset since it will have to come from their pockets.
‘the Minister has to announce where the additional billions will come from’
Where Does More Income Come From?
If you are running short on funds in your personal life then you have a few choices. Spend less (which government will have to do in some sectors) or earn more. Some of the options that Government have to increase their earnings are to:
- Hike the Fuel Levy (even though SA is already one of the most expensive countries in the world for fuel prices)
- Increase Capital Gains Tax (aimed at upper end earners who already pay tax)
- Push up Personal Tax rates for big earners such as those who earn more than R700 000/ year (eg up from 41% to 43% or even higher for those earning more money).
- Push up VAT for the first time since 1993.
Obviously, whenever people have to pay more tax and things cost more it becomes harder to garner votes and government will have to look to gain voter confidence by making changes elsewhere. At present, topics like the mining charter, nationalization, land and asset appropriation and the very popular anti-corruption (post-Zuma cleanse) are all being hotly debated due to the change of leadership within the ruling party.
The world and rating agencies watch and wait to see how the budget speech will go and what changes will be made to try, not only fill the huge income gap but also make even more money appear out of thin air for the planned free higher education scheme.