Highlights of the 2018 SA budget

Finance Minister Malusi Gigaba will present "a good budget" on Wednesday, 21 February, says President Cyril Ramaphosa.

Budget highlights and Lowlights



  • R85 billion in spending reductions,
  • Revenue measures to raise an additional R36 billion in 2018/19 by increasing VAT to 15%, and other taxes
  • Additional spending to fund free higher education of R57 billion over the medium term.
  • A provisional allocation in 2018/19 of R6 billion for drought management, assistance to the water sector, and to improve the planning and execution of national priority infrastructure projects.
  • Cut of R1.7bn in industrial incentives
  • The Carbon tax will be implemented from 1 January 2019.
  • Higher duty rate on luxury goods from 7 percent to 9% – on goods that are consumed mainly by wealthier households, such as cosmetics, electronics and golf balls.
  • Excise duty for motor vehicles will be increased from 25 percent to 30 percent.
  • A higher estate duty tax rate of 25 percent for estates greater than R30 million
  • The 2017 GDP growth projection has been revised upward to 1 percent, which is higher than the 0.7 percent in October last year.
  • The sale of state-owned properties with an estimated value of over R40bn.
  • The plastic bag levy is to be increased by 50 per cent to 12 cents

1 Comment on "Highlights of the 2018 SA budget"

  1. The Editor, The Messenger

    Minister Gigaba’s budget speech in Parliament contained lies.

    He said he had no alternative but to target the work and wealth of the citizenry through higher income taxes and vat. But as Minister of Finance he must have known of much wealthier countries like Hong Kong and Singapore who use land rents to finance the state.

    But worse, he did not explain that in 2107/18 income taxes and vat will cost South Africans ±R1.1 trillion in lost GDP.

    In so doing the Minister also showed disrespect to the Constitution. For Treasury is prohibited from collecting personal taxes. Sec 228 suggests that income taxes and vat should not be used because they “materially and unreasonably prejudice national economic policies” of job creation, access to land and economic growth; all the things we crave.

    This is because income taxes and vat are universally known as “dead-weight” taxes. They burden both buyers and sellers; the buyer pays more for the product and the supplier receives less.

    For example, at the introduction of income taxes in 1914, a R10 wheel barrow cost R10. After 1914 the barrow cost ±R12.50 with R2.50 going to Treasury. All price increases diminish demand. Professor J Stiglitz, and a handful of other Nobel economics prize winners, cautioned against taxing elastic goods and services:

    “One of the general principles of taxation is that one should tax factors that are inelastic in supply, since there are no adverse supply side effects. Land does not disappear when it is taxed….. That is why it also makes sense, from an efficiency point of view, to tax resource rents (such as land and the spectrum) at as close to 100% as possible. Joseph E. Stiglitz, The Roosevelt Institute. December 2, 2010, Working Paper No. 6.

    And it is not that the Minister was oblivious to the damage which personal taxes inflict. In announcing the creation of six new Special Economic zones in his budget, he boasted that the reduced corporate tax rate and employment tax incentives “will encourage exports, job creation and economic growth.”

    If that was his object, and he says it is, the correct budget would have opened up South Africa’s entire 122 million hectares to a tax-free status.

    Then Foreign Direct Investment (FDI) would queue up at our ports and harbours. According to the CIA World Factbook (2016) Hong Kong is the most inundated with FDI investors. HK hosts $USA 255K per capita, 90 times more than South Africa. It manages this by capturing land rents for the bulk of its revenue. This is a rates and taxes type user-charge, excluding improvements.

    As a result Hong Kong has no VAT and its personal and corporate tax rates are capped at 16% pa. No wonder this tiny island with 7 million inhabitants but with no water, mineral or farm sectors to speak of, has 68 million passengers passing through its airport annually; four times more than OR Tambo.

    The government owns all the land in Hong Kong so land rents are a given source of revenue. And popular too. The Financial Secretary withdrew a general sales tax bill from Parliament in June 2006, citing lack of public support.

    This implies that citizens prefer paying taxes on where their lands are located, not what they do on it.

    However, counter-intuitively, this does not seem to apply in South Africa. Here people are not vocal about Mr Gigaba’s expropriation without compensation by taxing the hard-earned fruits of citizens work and investments on the land. But they get very agitated when the state threatens to expropriate the land itself, without compensation.

    A sure compromise is therefore to compensate landowners for their loss of rents by relieving them of income taxes and vat.

    South Africa then becomes a tax-haven with people working a number of hours a day to pay the rent, depending on where they live. Thereafter all work, profits and interest are tax free. The other plus is when the state appropriates land rents the capital cost of unused land reduces to a perpetual recurring and reviewable rent. Then the state can afford to expropriate unused lands.

    Having affordable land is also a huge economic growth generator. It will not only bring 27m hectares of unused land into production, as counted by Frost and Sullivan. It will also boost state revenue by R162bn a year at an average of R500pm per hectare. If the state were to charge realistic connection fees to Eskom and water providers a further R100bn can be earned by state enterprises. Is this not enough, and more, for the hole in Mr Gigaba’s present cash flow and to cover university fees and the national health scheme?

    The Minister’s second lie is that taxes depend on trust in SARS. That is not true because land rents can be determined entirely by public auction, without inspectors.

    Minister Gigaba’s third lie was his “No matter how difficult the immediate challenges are we know the future will be much better.” But he must know that the opposite is true because the higher he raises taxes on work and investments so the higher land prices spiral. According to ABSA the average vacant stand (in Southfield) is now R780K, seventeen times higher than in 1994.

    This is contrary to sec 25.5 which demands that the state makes land more affordable and more, not less, accessible. This can only be achieved by capturing land rents not wages, salaries, profits and interest.

    For we know the higher land prices periodically prompt property bubbles which pinch the poor through toxic mortgages. And it is also common cause that unless raw land prices are lowered, the proletariat condition of landless and jobless will be perpetuated. This will continue the divisive dependence of the poor on an employer.

    A great nation-builder!


    Peter Meakin
    AIVSA Professional Valuer

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