Latest news with #NationalBudget
IOL News
4 days ago
- Business
- IOL News
A step backwards for the country's poor
SOUTH Africa's third iteration of the 2025 National Budget, colloquially referred to as Budget 3.0, is the consequence of the Government of National Unity (GNU) partners not being in agreement on the contents of the previous two versions of the budget. Historically, a most embarrassing time for the finance ministry, as the budget was not able to pass the approval of the house. In the past 30 years, when the ANC was in the majority, it was a fait accompli that the budget would be paraded through parliament without comment or question. Our GNU is essentially a partnership between several parties, some historically in opposition to each other, that are now unlikely partners that have come together to collectively form the government. One would have assumed that these parties would air out their difference behind closed doors and show the world a unified face, but this was a naïve assumption. The DA appeared to have suffered from amnesia, as a member of the GNU, well represented in the form of the Deputy Minister of Finance, who collectively crafted the budget, then opposed a VAT increase to fund essential spending. One can only describe the DA's behaviour as grandstanding during the first iteration of the budget, where they opposed the VAT increase of 1%. Enjoying their moment of the limelight, they opposed the revised VAT increase of 0.5% immediately and 0.5% in a year's time in the 2nd Iteration of the budget. Remarkably, their voters, generally the wealthy and the white community, may not have felt the impact of a VAT increase, but the sales tax would have impacted the middle-income earners, leaving the poor unscathed. Some have explained the real motive of the DA was to force the reduction of social spending to avoid a widening budget deficit. Budget 3.0 is the result of incredibly difficult choices trying to fund a R65 billion shortfall, which a VAT increase would have yielded. Our official unemployment rate of almost 33% , forces many South Africans to rely on Social grants. The Covid-19 Social Relief of Distress (SRD) grant, introduced to provide financial assistance to the vulnerable during the pandemic, was meant to be a temporary measure consisting of R370. The SRD and its poverty relief is cancelled from March 2026. This saving will add approximately R35 billion to next year's budget. Old age and other grants, which the treasury planned to increase over a 2-year period, will now increase only this year, saving the government R6.6 billion over three years. Motorists and Commuters will pay an extra 16 cents per litre on petrol and 15 cents per litre on diesel to help offset lost revenue from the withdrawal of the VAT rate increase. Passenger Rail Agency of South Africa (PRASA) would originally have received R19.2 billion over three years to assist with a turnaround at the shattered commuter rail company; this allocation will be reduced to R12.3 billion. R2.3 billion is saved by scrapping plans to digitalise Home Affairs over a 3-year period, which is a setback to its efforts to make the process of getting identity documents, passports and other documentation more efficient. The education department had a three-year budget to expand access to early childhood development and compensate employees at the provincial level, which has now been drastically reduced by R9.5 billion. The already understaffed health department will suffer further as funds allocated for salaries to hire unemployed doctors and to buy medical supplies are slashed by R8.2 billion. We have a huge National debt to service of R426 billion, translating to 20% of the revenue collected from taxes, which is currently spent on servicing interest and debt repayments on loans built from past budget deficits. Currently, we are growing at a very slow pace of 0.6%, while many emerging economies and our BRICS partners like India and China grow at rates of over 5%. Slow growth makes job creation, increased standards of living, including education and healthcare, impossible to achieve. One of the obvious solutions is promoting Trade. Our president's recent visit to the White House was aimed at trading more trade and lowering tariffs with the USA, while time will tell the consequence of BEE rules for Elon Musk's Starlink will be a small price to pay if we can retain a favourable trading relationship with our biggest trading partner. Strong trade relations help retain a healthy demand for Rand. Currency stability makes for easier National debt redemption and helps stabilise the price of Oil imports, calming inflationary and interest rate swings. As we reflect on a busy economic week of Budget 3.0 and Ramaphosa's White House visit, we spare a thought for the poorest in our land, who are now ever poorer after this budget. Budget Revenue = R2.2 Trillion Budget Expenditure = R2.6 Trillion Budget Deficit = R377.9 Trillion
IOL News
4 days ago
- Business
- IOL News
South African Reserve Bank cuts interest rates by 0. 25 percentage points
Governor of the South African Reserve Bank (SARB) is Lesetja Kganyago announced that the interest rates have drop by 0.25 percentage points Image: Screengrab South African Reserve Bank Governor, Lesetja Kganyago, on Thursday announced that the Monetary Policy Committee had voted to cut the interest rate by 0.25 percentage points on the back of lower inflation and a stronger rand. At the same time, Kganyago, said that the inflation target should be dropped to 3%, rather than the 3% to 6% range as is currently the situation. The Governor made this announcement as he revised the bank's gross domestic product expectation lower to just 1.2% this year, lower than Finance Minister Enoch Godongwana's anticipated 1.4%, which he made earlier this month during the third iteration of the National Budget. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ The cut in the interest rate drops the prime lending rate to consumer to 10.75%, depending on risk. The decline means a saving of just more than R2 000 on a R1 million home at prime, assuming a 20-year bond. For a R400 000 car, the decline in payments comes to R612 a year. Kganyago noted that there several countries lowering interest rates, excluding the US. The bulk of economists had expected the rate to be cut by 0.25 percentage points, with arguments in favour pointing to a stronger rand, which has been trading below R18 to the dollar on a continuous basis since May 19. The local currency was last at this level at the beginning of December last year before it started losing traction against the dollar about two weeks before Donald Trump was sworn in as the 47th US President on January 2025. In addition, a low inflationary environment has aided expectations of a decline in interest rates. Inflation for April came in at 2.8%, a percentage point increase on March's 2.7%, with both numbers below the central bank's 3% to 6% target range. The Producer Price Index, a forerunner to inflation, came in unchanged at 0.5% in April on an annualised basis when compared with March. This was, however, higher than the consensus of economists polled by Bloomberg. Kganyago noted that there had been disappointing growth figures from sectors such as mining and manufacturing. IOL
IOL News
5 days ago
- Business
- IOL News
How the National Budget is impacting South African consumers
The recent National Budget reveals significant challenges for South African consumers, with rising fuel levies and sin taxes exacerbating inflation. Experts advise reassessing budgets and exploring tax-efficient savings options. Image: Armand Hough / Independent Newspapers The National Budget and an increase in the cost of living will hit consumers, who should reassess their budgets now and start saving as much as possible before more taxes come in next year. On Wednesday, both the inflation numbers and the National Budget came out. The Consumer Price Index showed that inflation climbed from 2.7% in March to 2.8% in April, while Finance Minister Enoch Godongwana indirectly reduced people's take-home pay and added more subtle taxes. Godongwana had a R75 billion revenue hole, which he needed to fill somehow after two proposals to increase VAT were swept off the table. Harry Scherzer, actuary and CEO of Future Forex, said the National Budget is a 'mixed bag for South African consumers. On the positive side, the decision to hold VAT steady at 15% avoids placing additional strain on household budgets. However, the increase in the fuel levy will hit consumers hard.' Scherzer explained that, in a low gross domestic product environment, higher fuel taxes will have a direct impact on food, transport, and other costs. 'On top of that, above-inflation hikes in sin taxes will further dent disposable income, especially for lower-income earners'. Ricardo Teixeira, COO at BDO Wealth Advisers, said National Treasury estimates that by keeping the tax brackets unchanged, it will raise an additional R15.5bn in personal income tax in the current tax year. He stated that 'anyone earning R96,000 or more will inevitably have less take-home pay each month' due to unchanged income tax thresholds and reduced medical tax credits. Teixeira noted that a 4% increase in the fuel levy and 6.75% on 'sin' taxes will impact monthly budgets. From the fourth of June this year, the general fuel levy will increase by 16 cents per litre for petrol, and by 15 cents per litre for diesel. The increase in fuel costs may negate any potential savings in monthly expenses of a potential decrease in prices at the pump. The Central Energy Fund's latest figures show that 93 octane fuel should go down by 22c, with diesel set to decline 50c, although these numbers could change depending on exchange rates and the price of oil, both currently favourable. Nokukhanya Madilonga, associate director of Employees Tax and Global Mobility Services at SNG Grant Thornton, said the announcement that the basket of tax-free food would not include more items is 'not good for the consumers, especially the low earners'. Teixeira advised consumers that 'staying mindful of your spending is a prudent strategy for every South African to adopt, helping to prevent taxes from eroding your wealth'. Savers are likely to breach the tax-free interest threshold more easily, and Teixeira said that 'structuring your savings using tax-free savings accounts, endowment policies, or retirement annuities is a good option to keep your savings tax-efficient'. Madilonga said: 'All is not lost as the taxpayers will still be able to reduce their taxable income using some of the incentives available'. She cited contributions to retirement funds and tax-free savings accounts as mechanisms to help with money issues. Teixeira also advocated for extra retirement fund contributions: 'Contributions are tax-deductible, lowering your taxable income now while securing your future. You can contribute up to 27.5% of your taxable income or R350,000, whichever is lower.' Regarding tax-free savings accounts, 'let the magic of compounding maximise this amazing tax benefit for you,' said Teixeira. Boipelo Ndimande, Consult by Momentum's CFO, said the importance of having a well-diversified, long-term financial plan cannot be overstated. 'Investors should avoid knee-jerk decisions, she said, advocating that consumers work with a qualified financial professional to 'weather these headwinds'. Now, more than ever, understanding how macroeconomic shifts affect day-to-day financial decisions is crucial, said Scherzer. On property transfers, Teixeira calculated an average saving of around R3,500 per every R1 million of the value of your property purchased. Yet, Citadel portfolio manager, Mike van der Westhuizen, said the National Budget left out several items that could pose fiscal risks in the near future, noting that there is 'no mention of National Health Insurance, likely due to affordability concerns'. Van der Westhuizen added: 'These omissions represent a significant risk if any of them materialise later this year without a matching revenue plan.' For 2026, when the government needs to find extra money seriously, Teixeira said, 'without a reduction in government spending, this shortfall is likely to be borne by the consumer again in the form of additional tax collections'. On avenue will be closing in on tax defaulters. Teixeira noted that the South African Revenue Service (Sars) is receiving more funding, with Godongwana stating the government will provide an extra R4 bn over three years and expects to collect 'R20bn to R50bn in additional revenue per year.' Investec chief economist Annabel Bishop said that the potential income is not included in the revenue estimates. In the 2024/25 fiscal year, Sars collected R95bn in debt owed by taxpayers, she added. 'Unless growth improves and spending pressures are permanently resolved, the risks will only grow,' Van der Westhuizen said. 'It's a fine balancing act, and right now, the balance remains precarious.' 'Budgeting matters for everyone – and if South Africa's national budget tells us anything, it's that getting it right isn't always easy! The year ahead looks challenging, with higher taxes likely to affect both your income and everyday spending,' said Teixeira. PERSONAL FINANCE
IOL News
5 days ago
- Business
- IOL News
LETTER TO THE EDITOR: Cape Town mayor can learn from finance minister's budget
Cape Town Mayor Geordin Hill-Lewis should table a revised Draft Budget and deliver a Budget that is realistic, linked to the CPI of 4.5%, to make it affordable to ratepayers, says the writer. Image: Phando Jikelo EXAMINING the history of the growth in the City of Cape Town budgets, it can clearly be seen that since 2021/22 Budget growth picked up substantially. The Capital Budget grew from a modest R3.7 billion to a humongous R12.7 billion in only four years. Taken against the South African economy which has a growth rate of 1.4% (revised down from 1.9%) the City's Budget growth of around 9% per year, is totally out of proportion with the rest of the country. In the latest National Budget the minister announced that future grants to municipalities will be lower due to National Budget constraints. Yet, the Mayor of Cape Town will not budge on his aggressive Capital Expansion for future projects. In the light of the national government's financial constraints, a Metro like the City of Cape Town simply cannot continue as if it is not part of the larger country. The disastrous results of this Mayor's lack of strategic vision, are clearly visible after the latest Budget fiasco with the COCT Draft Budget for 2025-26. Ratepayers have reached the end of their ability to absorb the ever increasing number of fixed charges the City introduces to fund their ambitious expansion plans. The link to property values which creates an exponential rate of tariff increases can simply not be implemented in this tight fiscal environment of national growth of only 1.4%. On 28 May 2025, the Mayor should therefore table a revised Draft Budget and deliver a Budget that is realistic, linked to the CPI of 4.5%, to make it affordable to ratepayers. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ The new fixed charges must be removed and above all, an alternative to the link to property values to determine the water fixed charge must be found. (A simple flat rate as what is applied for electricity is suggested.) The Mayor should demonstrate the same restraint as what was shown in the national budget. The finance minister was forced through effective opposition in a GNU where no single party had the majority to push through what it wanted. Sandra Dickson | STOP City of Cape Town
Daily Maverick
7 days ago
- Business
- Daily Maverick
The fuel levy increase vs VAT hike explained
While South Africans breathed a sigh of relief at the passing of the 2025 National Budget – and the relegation of the proposed VAT increase – one announcement of note was an increase in the fuel levy. While far less politically contentious than a VAT hike, debate has emerged over whether the fuel levy increase is, in fact, a 'stealth VAT'. It's a shift that raises valid questions about regressivity, affordability, and who will bear the brunt of the cost. When the levee breaks The National Treasury had aimed to raise R75-billion over three years by increasing VAT by 0.5% and then another 0.5% next year. But following political backlash and a likely legal pushback, the proposal was withdrawn. The fiscal gap, however, remained and needed plugging. advertisement Don't want to see this? Remove ads In his revised May 2025 budget speech, Finance Minister Enoch Godongwana announced that the shortfall would instead be offset by expenditure controls and new revenue measures, including a 16c/litre increase on petrol and 15c/litre on diesel, effective 5 June 2025. This marks the first fuel levy increase since 2021/22, bringing the total to R4.01 per litre – up from R3.85. Treasury projects that the change will raise R23-billion over three years, far less than the R75-billion expected from the shelved VAT plan, but still material given the constrained fiscal outlook. Read more: 'We tread water for another year' — this fiscal offering is a stopgap, not a solution Who suffers? 'Well, it is pretty much the same,' economist Dawie Roodt told Daily Maverick when comparing the VAT proposal to the fuel levy increase. 'The only difference is the quantum – the effect area will be less, simply because the rate of increase is less.' VAT applies broadly to goods and services (excluding zero-rated essentials), while the fuel levy targets a narrower tax base, but its economic reach is wide – transport, logistics, manufacturing and food pricing are all exposed – which means that costing goes up across the value and supply chains – and even if it is the case that this increase is more distributed than a VAT hike, its impacts are still disproportional. advertisement Don't want to see this? Remove ads According to the Pietermaritzburg Economic Justice & Dignity Group, which carries out monthly research on basic household costs, a minimum-wage worker commuting by taxi can spend more than a third of their monthly income on transport. Here, even a marginal fuel price increase imposes disproportionate burdens on low-income earners. As The Outlier reported in its weekly newsletter issued on Friday, 23 March 2025: 'While the 16c increase is just another charge for some of us, it will likely impact poorer communities more. When the fuel price rises, it hits South Africa's working class the hardest.' These costs also pass through to food prices and consumer goods. 'Fuel costs increase the price of most other goods and services as they push up transport costs across the board,' the publication said. A revenue hole that still needs to be filled Taking into account that the fuel levy will raise an estimated R4-billion in 2025/26, there is still quite a gap. 'Certainly not comparable,' Roodt notes. 'These two cannot be compared in terms of quantum, but in terms of the effect on the poor, that is pretty much the same.' To close the gap, the Treasury is counting on SARS to ramp up compliance and enforcement – targeting an additional R20- to R50-billion in revenue annually. These gains remain aspirational, however, and are not yet factored into formal projections, both in terms of revenue or timeline, with much still depending on SARS Commissioner Edward Kieswetter. advertisement Don't want to see this? Remove ads advertisement Don't want to see this? Remove ads An inflation signal? Perhaps not For now, headline petrol prices are expected to drop in June, thanks to a decline in the basic fuel price. That may temporarily mask the effect of the levy increase, but longer-term pressures persist. 'Hardly any inflationary pressures will be expected from this,' Roodt argues, 'because petrol prices are coming down in any event.' April CPI data shows inflation edged up from 2.7% in March to 2.8%, with key contributors being food, beverages, housing and services. Read more: SA consumer inflation ticks up in April but remains below 3.0% While the direct inflationary impact of the levy may be limited, the pass-through effects to goods and public transport fares are likely to show over a longer horizon. Is there a better way? It can be said that a fuel levy increase, much like a VAT increase, is regressive and disproportionately affects the most vulnerable. Roodt is unequivocal: 'South Africa's total tax regime is dramatically progressive already,' he says. 'There's nothing else that can be done to make it more progressive, basically.' A detailed look at the May 2025 Budget shows that indirect taxes – including VAT, fuel levies and excise duties – account for more than 45% of gross tax revenue, compared with 39.9% from personal income tax. VAT alone contributes more than R480-billion, and domestic goods and services taxes collectively represent a third of all state income. advertisement Don't want to see this? Remove ads advertisement Don't want to see this? Remove ads In other words, while the tax code may be progressive in theory, its impact is mixed in practice – and regressive taxes still carry weight in the government's pocket – but the fuel levy, unlike income tax, charges the same amount per litre regardless of the earner's bracket. This doesn't negate additional strain on middle and low-income households, but rather illustrates the increasingly narrow options available to the Treasury in an almost zero-growth environment, saddled by debt. A tax by another name? Ultimately, the decision to withdraw the VAT hike and instead raise the fuel levy was as much political as it was fiscal. VAT increases require legislation and expose divisions in Parliament. The fuel levy, by contrast, can be adjusted via the Budget process – no legislative amendment required. Whether this amounts to a 'stealth tax' or a strategic compromise depends largely on your own perspective, but as fuel-dependent households, which includes everyone within our borders in one form or another, absorb yet another marginal increase, it is clear that we are all still paying – just not through VAT. DM
