The poor do not live on zero-rated foods alone
No matter which way you slice it, the VAT hike and fiscal drag will depress spending and stymie economic recovery, writes Sunita Menon
The poor do not live on bread and pap alone, South African Communist Party general secretary Blade Nzimande reminds everyone. In line with expectations from tax analysts and economists, former finance minister Malusi Gigaba announced in the budget that value-added tax (VAT) would be increased by one percentage point, from 14% to 15%, from April 1. The hike is expected to generate R22.9bn to help finance the current consolidated deficit of 4.3% of GDP. VAT was last adjusted in 1993 and, according to the Treasury, is lower than the global and African averages, but in recent years, trade unions have warned against a VAT increase. Consumers are expected to be hit hard by the increase, particularly lower-and middle-income households. An item that costs R100 will now go up to R100.88, says Old Mutual economist Johann Els. Given that real wages have not increased in line with inflation, it’s a tough pill to swallow. While there will be no adjustments to the top-four income tax brackets, th...
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