PricewaterhouseCoopers economists said while the VAT increase is not favourable towards consumers, it is part of a drive by National Treasury to get fiscal finances under control. This, in turn, has positive effects for the economy and its people over the long term.

“While the increase in the VAT rate over the next two years will negatively impact local consumers, it is part of a strategy aimed at righting the country’s fiscal ship. This will benefit all South Africans, and especially the poor who are dependent on the government to find money for public services and social transfers,” said Mbai Rashamuse, PwC Southern Africa Tax and Legal Services Leader.

Lullu Krugel, PwC South Africa chief economist, said expanding the list of VAT zero-rated products has long been called for by private business and civil society as a way of supporting the financial situation of low-income households.

“Today’s announcement to expand the basket of goods to include more meat and other products that are widely consumed in the lower expenditure deciles is welcomed with open arms in light of the impending VAT increases. It is now incumbent upon the producers and retail sector to ensure that these adjustments are passed on to the consumer,” Krugel said.

Izak Odendaal, the Chief Investment Strategist at Old Mutual Wealth, said , “This appears to be a relatively good (proposed) Budget from an investor’s point of view with an emphasis on fiscal consolidation and economic growth, but taxpayers have to cough up, with VAT increases and no bracket creep relief. The most notable and contentious item is the 0.5 percentage point VAT increases proposed for this year and next. These are not supported by the DA. Therefore, the debate will now move to Parliament where compromises must be reached, potentially adjusting the proposals."

“Retirement annuities and retirement funds remain effective tools for reducing your income tax liability. Tax deductions are allowed for contributions of up to 27.5% of the greater of remuneration or taxable income, capped at R350 000 per year. These assets also remain exempt from Estate Duty, unless you have disallowed contributions,” said Tiaan Herselman, the head of Advice and Proposition at Old Mutual Wealth, noting SA Revenue Service received R3.5 billion to enhance its High-Net-Worth Individuals Unit, though no wealth tax decision has been finalised.

“The projected budget deficit numbers and the forecast for debt peaking sooner than previously anticipated is good for local bonds as well as the local currency. Furthermore, this budget confirmed that the days of easy funding for SOEs (state-owned enterprises) are firmly behind us, and Treasury will be implementing a much tougher stance on any SOE support,” said Victor Mupunga, the head of Research at Private Clients by Old Mutual Wealth.

“A lot of the bad news has already been priced into bonds and long-term yields if held to maturity still have value relative to other emerging economies. A more viable and welcome approach to increasing revenue is the proposed infrastructure bonds,” said Kim Rassou, the head of Old Mutual Multi-Managers.
BUSINESS REPORT