Here's how the mini-Budget will impact you
The medium-term budget policy statement, released on Wednesday, provided an update on government finances and the state of the economy.
In short: it’s not looking pretty.
A R20 billion backlog in VAT refunds will be paid off in one go – leaving a massive dent in government’s finances. The economy is also looking weaker than government expected.
Here’s how it will affect you:
No tax relief in February’s Budget
The gigantic VAT-shaped hole in the government budget means there won’t be any tax cuts in next year’s national Budget. No big hikes or new taxes are expected – but Treasury says that adjustments to personal income tax brackets, levies and excise duties will be in line with inflation.
More products will be tax-free
You won’t pay VAT on white-bread flour and cake flour, as well as sanitary products from April 2019.
Brace yourself for fuel levy hikes
The Road Accident Fund remains a train wreck. Despite a 30c increase in the RAF levy that took effect this year, the fund’s liabilities are expected to almost double to R393 billion by 2022 from current levels.
“The RAF will require further large increases to the fuel levy in each of the next three years to manage the short-term liability,” Treasury says.
Impact on business owners
While the corporate tax rate won’t be hiked in February, a carbon tax – estimated at R120 per ton of carbon dioxide – will come into effect on June 1, 2019.
If you are owed a VAT refund, you should get it back pronto.
Instead of paying out VAT refunds within 21 working days, as it was supposed to, SARS has been sitting on these refunds. This backlog will now be settled in a once-off payment.
Responding to questions about whether SARS in the past deliberately held back VAT payments to boost its own financial position, acting SARS head Mark Kingon told journalists that it was “open for debate”.
But he committed to clearing the backlog as quickly as possible.
South Africa is at risk of losing its investment rating
The MTBPS paints a grim picture of government finances: due to the weak economy and large tax shortfall South Africa’s budget deficit will continue to grow next year.
*Cost of capture* The interest-bearing debt of the 10 state- owned companies that borrow most has grown from R266.7 billion in 2009/10 to R702.7 billion in 2016/17 – an increase of 163 per cent *in seven years*— Ferial Haffajee (@ferialhaffajee) October 24, 2018
It could even convince credit rating agency Moody’s to downgrade South Africa to junk. Moody's is the only agency that hasn’t yet taken away South Africa’s investment rating. If it downgrades us, South African bonds will lose their place in the most important group of government bonds. The Citigroup’s World Government Bond Index contains only bonds that are investment grade.
Then, all the massive investment funds that track the index would be forced to sell their South African government bonds. The R167 billion sell-off will lower the value of our bonds, and make it much more expensive for government to borrow money to keep the country afloat.
And because it will spend so much more on financing its debt, government will probably hike your taxes. Also, the rand will weaken, pushing up fuel costs and other prices. This will increase the likelihood of an interest rate hike.
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