This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Since Cyril Ramaphosa has become South Africa’s newly appointed president, there has been much speculation that he may (should) look at downsizing and reshuffling his (Zuma’s legacy) cabinet. Arguably the Minister of Finance position has been under the most scrutiny after the appointment of former and controversial Home Affairs Minister, Malusi Gigaba last year, was promptly followed by sub investment downgrades by ratings agencies S&P and Fitch.
While there is rumours that Pravin Gordhan may be summoned for what would be his 3rd term as Finance Minister, the question is, can the role really be changed with only a day to go before the very tough Budget Speech set to be released (21 February 2018)? At the moment this appears unlikely.
Whoever delivers the upcoming budget has a challenging job, having to accommodate for: a revenue collection shortfall, increased cost of borrow, failing State Owned Enterprises (SOE’s), free tertiary education and the National Health Insurance scheme, all whilst trying to contain expenditure. Furthermore the event will be closely monitored by ratings agencies, of particular concern, would be Moody’s Investors Relations, the only major ratings agency to have South Africa’s local currency debt still in investment grade territory.
The ANC National Executive Committee (NEC) have confirmed the decision to go ahead with free higher education in South Africa. The current plan is to allow for free first year tertiary education for those students from households with a gross combined annual income which is less that R350 000. This will be a key item on the agenda as we look to how the newly added initiative will be financed.
What’s expected? The major changes considered
For the first time since 1993, it is widely expected that the Finance Minister will announce an increase in Value Added Tax (VAT), by between 1% and 2%, bringing the total VAT consideration to 15% or 16%. This could raise a further R40bn to R50bn in collection.
The Minister may look to target high income earners with increases to the personal income tax rates (in a tiered structure) for those earning over R700 000 and R1,5m per annum respectively.
It is also likely that a further Fuel Levy will be announced along with further sin tax increases. New collections from carbon and/or sugar taxes are also expected to be announced.
Speculation that the tax reimbursements received from medical aid contributions could be done away with in order to help find funds for the National Health Insurance Scheme is rife. This could raise a further R25bn in collections.