Discovery : On the cusp of a momentous South African National Budget Speech

Delivering the mid-term budget in October last year, Finance Minister Malusi Gigaba indicated that South Africa is sitting with its highest deficit ‒ an enormous R69.3 billion for the 2017/18 tax year ‒ since the recession in 2009. In addition to this, the bill for the fee-free higher education promise is an estimated R40 billion. This will apparently be funded by expenditure cuts of R25 billion and increased taxes of R15 billion.

Harry Joffe, Head of Legal Services at Discovery Life, has a few predictions about what South Africans might see in the budget for 2018.

What will happen to the marginal tax rate?

With the state focused on raising money, marginal rates will inevitably increase. The only question is will it go as high as 50%? And at what level of income, R3 million or R5 million?

How does South Africa's VAT rate compare with international standards? Will there be an increase to the VAT rate?

South Africa's VAT rate is 14%. The international average is at least 16%. A 1% increase in VAT raises between R15 billion and R20 billion. The big question is, will this be the year that the government finally increases VAT?

Will a wealth tax be introduced?

This is exceptionally difficult to administer. Many European countries are dropping wealth taxes because it does not raise much revenue, however, it does look good in the current political environment.

Should we expect any changes to the capital gains tax inclusion rates?

Once the marginal rate is increased, capital gains taxes will automatically increase too, as that is a function of the investor's marginal rate. So, it should not be necessary to raise the capital gains tax inclusion rate in addition.

Will the Medical Tax Credit be scrapped?

It is hoped not. Although this credit is expensive to the fiscus, studies have indicated up to 1.9 million people could leave medical aids if the credit is dropped. They will then be reliant on an already overburdened state healthcare system.

It remains to be seen if the above predictions will be fully implemented this year, or possibly introduced in a stepped approach. However, a more telling reaction will be that of market movements and any announcements by rating agencies in the months following the 2018 Budget Speech.

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About Discovery Limited

Discovery Limited is a South African-founded financial services organisation that operates in the healthcare, life assurance, short-term insurance, savings and investment products and wellness markets. Founded in 1992, Discovery was guided by a clear core purpose - to make people healthier and to enhance and protect their lives. Underpinning this core purpose is the belief that through innovation, Discovery can be a powerful market disruptor.

The company, with headquarters in Johannesburg, South Africa, has expanded its operations globally and currently serves over 5 million clients across South Africa, the United Kingdom, the United States, China, Singapore and Australia. Discovery recently partnered with Generali, a leading insurer in Europe, and has partnered with John Hancock in the US. These new partnerships will bring Discovery's shared-value business model to protection industries in Europe and the US.

Vitality, Discovery's wellness programme, is the world's largest scientific, incentive-based wellness solution for individuals and corporates. The global Vitality membership base now exceeds three million lives in five markets.

Discovery is an authorised financial services provider and trades under the code 'DSY' on the Johannesburg Securities Exchange.

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