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A difficult Budget | Context and Outcomes (part 2)

By: Bradley Mitchell, Mike Haworth and Riaan Prinsloo 

The election of Cyril Ramaphosa as the leader of the ruling party, followed by his appointment as President of South Africa, ushered in a wave of renewed optimism in the country’s prospects among citizens and the global investment community. Swift leadership changes at embattled public institutions imply that crippling corruption should be materially stunted; while comments regarding the size of national government departments and moves to resolve matters like the controversial mining charter impasse, are expected to reduce bureaucratic inefficiencies, improve the economic growth trajectory and reduce unemployment.  

It is critical for Ramaphosa, and for the country, to capitalise on this re-found optimism, as National Treasury remains under significant pressure to increase tax revenue and implement more stringent fiscal consolidation, without stifling economic growth. These measures are desperately needed in order to deal with a sharply widening budget deficit and a higher debt trajectory; which continues to drive the fastest growing component in government expenditure, namely interest payments.  

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Budget Speech 2018

2018 Budget Speech

all the news and analysis

A difficult budget Context (part 1)

By: Bradley Mitchell, Mike Haworth and Riaan Prinsloo  

South Africa, for now, remains structurally fragile, with a very weak potential growth outlook, which combined with lower inflation is likely to continue to constrain tax revenue growth.  

The current euphoria has also resulted in a more diverse outlook of South Africa’s real GDP growth for 2018, from 2.3% at the top end to 0.9% at the lower end. This is mainly due to differing opinions regarding the expected effectiveness of the new leadership and the time it will take to implement structural improvements.  

Considering the upcoming public sector wage negotiations; continued SOE underperformance; and the water crisis in the Western Cape, we believe that a continued strong upward pressure on government expenditure remains likely.  

Therefore, while National Treasury remains in crisis, the momentous political shift and subsequent euphoria combined with the positive indication of improved debt consolidation may stave off further downgrades from rating agencies.

A critical ratio that reflects this improved expectation is the gross debt to gross domestic product ratio, which is now projected to rise from 53.3% in 2017/18 to 56% in 2020/21; reduced from the previous levels that went up to 60.8% in 2021.   

Taxes, taxes... and more taxes |

By: Bradley Mitchell, Alec Abraham and Riaan Prinsloo  

Personal Income Tax (PIT)  

Given the substantial strain already being placed on PIT, lacklustre economic growth and potential increased slippage in compliance levels, were marginal tax rates raised, we believed that there would not be any material changes in marginal tax rates. National Treasury did not provide any relief for inflation (tax bracket creep). 

The new ‘super tax bracket’ of 45% on taxable income above R1.5m, imposed from 1 March 2017, is only projected to collect an additional R4bn from just 103,000 taxpayers.  

The PIT burden is now back at levels last seen in 1999/2000 at 10% of GDP.  

Corporate Income Tax (CIT)  

We did not expect any changes to the general corporate tax rate of 28%; but rather expected SARS to continue enforcing anti-avoidance measures to improve collection. 

Government has indicated the intention to rather review corporate tax incentives, to broaden the tax base and raise additional revenue.  

SARS is expected to look more closely at matters such as base erosion, profit shifting and transfer pricing.  

What did Minister Gigaba’s 2018 Budget Speech mean for you and your investment universe?   

The Minister of Finance had to make some tough calls in his 2018 Budget Speech. Watch the Sasfin Wealth experts unpack some of the most salient changes from the speech and listen to how these changes will affect you in today’s difficult economy:   

Austerity measures were the order of the day as the 2018 Budget Speech focused on reducing government expenditure and finding alternative sources of revenue to ensure the books balanced. Read more from Sasfin Wealth’s experts. 

all the news and analysis

The fiscal hole  

The reality is that South Africa’s fiscal environment is tough. The budget deficit is expected to deteriorate further from its original estimate; due to revenues falling short of initial estimates and persistently high expenditure. 

The issue of rising debt service costs is aggravated by factors such as the rising contingent liabilities associated with continually under-performing State Owned Enterprises (SOE’s) and the immediate need to fund free higher education. 

Filling the hole  

The obvious options available to reduce the fiscal gap are to raise tax rates and/or slow growth in government expenditure (fiscal consolidation). Despite the optimism, it remains difficult for the Minister of Finance to introduce significant spending cuts this year or increase taxes. 

Raising tax revenues 

Overall changes to tax measures announced by Minister of Finance Malusi Gigaba are expected to raise an additional R36bn for the fiscus. The most significant tax revenue increase came from the first VAT increase in 25 years. The increase to 15%, effective 1 April 2018, is expected to raise an additional R22.9bn for the fiscus. 

A further R6.8bn of additional taxes is expected to be generated by making no real change to personal income tax brackets, required to offset the effect of inflation. 

Minister Gigaba also announced higher taxes on luxury goods. An additional R1bn is expected to be raised from taxes on items such as cosmetics, electronics, mobile phones and motor vehicles. The maximum duty for motor vehicles was increased from 25% to 30%.   Furthermore, the increased general fuel levy and Road Accident Fund levy, which adds 52c a litre to fuel, combined with the hike in excise duties is expected to raise a further R5.5bn.

Cutting expenditure

Government expenditure has been slashed by R85.7bn over the next three years. However, it is concerning that the majority of this will come from a R53.4bn cut in national government budgets, particularly large programmes and a further R30bn from a cut in transfers to public entities. Conditional infrastructure grants of provincial and local government is cut by R28bn. We believe these measures further exacerbate the lack of investment required to drive longer-term growth.

The social grant allocation has been increased by R2.6bn, partially to offset the negative impact the VAT increase is expected to have on the poor. Social grants are expected to reach almost R190bn by 2020, on the back of above-inflation increases of 7.9% on average annually over the next three years. Until the current euphoria translates in actionable change that drives employment and economic growth, the expansion of social protection expenditure appears to be non-negotiable, given the expanding poverty and unemployment levels in the country.

Further expenditure cuts could be achieved by cutting down the number of government departments or cutting projected capital expenditure. Until the current euphoria translates in actionable change that drives employment and economic growth, the expansion of social protection expenditure appears to be non-negotiable, given the expanding poverty and unemployment levels in the country.  

Our investment and tax experts share their key insights on the 2018 Budget.  

Johan Gouws | Head of Institutional Consulting

Johan heads up Sasfin Wealth’s Institutional Consulting business. Gouws was part of the founding team of Absa Investment Management Services (AIMS) in 1998, and held the position of Head of Absa Multi Management before taking the helm at Absa Asset Consultants. Gouws holds a B.Com (Hons) in Investment Management and a Diploma in Financial Markets and Instruments from the University of Johannesburg, together with an MBA from Wits Business School. 

Bradley Mitchell | Head of Research, Fund Manager

Bradley heads up the Sasfin Wealth investment research team that is responsible for investment strategy, equity analysis and equity portfolio construction. He was an actuarial consultant for 5 years at Momentum before spending 6 years as a quantitative strategist for a domestic sell-side broker. 

Riaan Prinsloo | Fund Manager

Riaan is primarily responsible for fundamental company research, focused on global listed companies across a broad range of sectors, and assisting with the management of the global equity fund. 

Mike Haworth | Investment Strategist

Mike is responsible for investment strategy in the investment research team. His global macro-economic insights form a key foundation in equity portfolio construction. 

Alec Abraham | Senior Equity Analyst

Alec is involved in fundamental company research across a broad range of industries, with a particular expertise in retail and healthcare. His experience and insights have proven invaluable in our equity portfolio construction process and in building up the equity analyst team’s overall experience.

Contributors |


• National Treasury Budget 2018 Speech  

• National Treasury Budget 2018 Highlights 

• Watch the full Budget Speech

Wealth Tax Hikes Implementable and Sustainable?

By: Bradley Mitchell and Alec Abraham  

The introduction of wealth taxes remain complex to implement and continues to risk capital fleeing South Africa.

Estate duty was raised from 20% to 25% for that part of an estate with a value over R30 million.

Increases to the General Fuel and Road Accident Fund levies, both of which are included in the price of petrol and diesel, were expected. Together these levies make up approximately 33% of the total cost of a litre of fuel.   

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Andrew Wellsted | Head of Tax,
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Andrew is also a member of the firms' specialised exchange control and regulation and investigation teams. His tax experience covers a broad range of transactions relevant to the practice's corporate client base, predominantly in the international, banking and mergers and acquisitions fields. In the banking and financial service industry, Andrew has significant experience in advising various financial institutions on financing transactions including project finance, structured finance and preference shares. He also has experience in product structuring in the financial services sector, including advising on the structuring derivatives and other structured products from a tax perspective.

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Gain a full insight into the 2018 Budget

Watch our contributors videos 


• Budget Speech infographic


• Taxes taxes and more taxes

• Wealth tax hikes


• Budget Speech context


• Budget Speech context part 2

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