Tough decisions that will hopefully grow the economy

Fiscal discipline

While there were a lot of areas which caused concern for consumers in the 2018 budget, it seemed as if government was backed into a corner and that former Finance Minister Malusi Gigaba had little choice but to make the tough decisions that will hopefully grow the economy.

It is now up to the new Finance Minister Nhlanhla Nene – who is not unfamiliar with the position – to work with what Gigaba left him. How will this effect the consumer?


The issue of VAT

The issue of increasing Value Added Tax (VAT) has always been seen as a political mine field. On the one hand, it is one of the easiest ways to increase the country’s tax revenue. On the other hand, it affects rich and poor citizens alike and the African National Congress (ANC) has relied heavily on the vote of the poor in the past to keep the party in power.

But there was simply nothing else that government could have done. The question now is: how will the VAT increase affect the man on the street?

Jenny Gordon, Head of Legal Support and Legal Services at Alexander Forbes Retail, says that the VAT decision increase the cost of living for all households. However, the zero-rating of basic food items and paraffin will reduce the impact on the poor, who will receive further assistance through an above-inflation increase in social grants.

“The wealthiest 30% of households in the country contribute 85% of the country’s VAT revenue. South Africa’s VAT system includes 19 basic food items that are zero-rated. This system remains in place. While government has explored implementing a more progressive tax, this option is not being proposed and it has not been recommended by the Davis Commission,” says Gordan.


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