R57 billion has been allocated to free higher education for the poor and value-added tax has been increased from 14 to 15 per cent.
Minister of Finance Malusi Gigaba made the announcement in his maiden Budget speech in Parliament on Wednesday revealing that the choice to up VAT was “unavoidable” but added the 1 per cent would raise an additional R36 billion.
“The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households,” he said.
Gigaba explained that tertiary higher education will be free to the poor and will be phased in starting with 2018’s first years.
“All new first-year students with a family income below R350 000 per annum at universities and TVET colleges in the 2018 academic year will be funded for the full cost of study.”
In addition to an increased VAT, Gigaba relayed a list of other tax proposals including a below inflation increase in the personal income tax rebates and brackets.
This, according to the Finance Minister with offer greater relief for those in the lower income tax brackets.
Prices on luxury items such as sportscars and smartphones are also set to increase as an increase of between 7 and 9 per cent in the ad-varolem duty rate on luxury goods.
A higher estate duty tax of 25 per cent will also be implemented for estates greater than R30 million.
Fuel prices are set to hike on 4 April 2018 due to a 52 cents per litre increase on the levies on fuel of which 22 cents per litre will go towards general fuel levy and 30 cents will be allocated to the Road Accident Fund Levy.
South Africans can also expect the price of cigarettes and alcohol to rise as Gigaba also announced an increase of between 6 to 10 per cent on sin tax.
The Minister of Finance also announced an increase in various social grants – which will, according to the minister, be increased at a higher rate in order to compensate for the increase in VAT.
The foster care grant is set to increase by R40 to R960, the state old age grant by R90 to R1690, child support grant R25 from R380 to R400. All increases will be put into effect as of 1 April 2018.
Education continued to be at the fore front and was describes as the fastest growing spending category. Gigaba said R32bn will be invested in building and upgrading schools over the next three years, R3.8 billion will go towards providing sanitation for 325 and 286 schools respectively. R22bn has been allocated to feeding 9million students at 19 800 schools.
Despite a series of increases set for the 2018/2019 year, Gigaba announced that gross domestic product (GDP) growth is projected at 1%, which is higher than the 0.7% in the mid-term policy statement speech in October.
The 2018 Budget also slashes government spending by R85 million, cutting down the scope of several large infrastructure projects, including some relating to basic education and healthcare.
Gigaba also said the government is ready to provide financial assistance where necessary to respond to the country’s water crisis.
A provisional amount of R6 billion has been set aside for drought relief and for public infrastructure investment.
South Africa’s consolidated budget revenue for the 2018–19 financial year is R1.49-trillion while expenditure stands at R1.67-trillion. That leads a deficit of more than R180-billion.
Gigaba described the 2018/2019 budget as a “tough, but hopeful” one and said it would chart “a path out of economic stagnation”.
Watch the full Budget Speech here: