Post Budget Speech

Post Budget Speech

Finance Minister Malusi Gigaba delivered his maiden budget speech during the past week. The investment community and the rating agencies reacted positively to the announcements made by the minister. 

Finance Minister Malusi Gigaba delivered his maiden budget speech during the past week. The investment community and the rating agencies reacted positively to the announcements made by the minister.

Gigaba announced a one percentage hike in the value-added tax (VAT) rate, from 14% to 15%, which means with the exception of 19 zero-rated items, everything we buy will become that bit more expensive. Very little relief were given to income tax payers in the form of an inflation adjustment. The top four tax brackets remain unchanged, meaning higher income earners will be paying more of their income to government in real terms. The so-called sin taxes have been increased as of 1 April this year. Smokers will pay R1.22 more for a pack of twenty cigarettes, a 750ml bottle of wine will cost you 22.5 cents more, and the price of a can of beer or cider will increase by 14c. Sugar tax will be imposed in April this year. On 4 April, the price of fuel will increase by 52 cents a litre, 30c of which goes to the road accident fund levy and 22c to the general fuel levy.

Local equity markets closed the week largely unchanged, with markets reacting to positive news out of South Africa, but continued grappling with negative international sentiments. The rand traded firmer after the budget speech and made some more gains towards the end of the week. The currency traded at around R11.58 to the USD.

In the US, the Fed meeting minutes support the case for rate hikes. The US Federal Reserve acknowledged that the strengthening economic growth outlook in the United States reinforces its plans for raising short-term interest rates.

In Europe, the European Central Bank (ECB) officials expressed concern over dollar weakness that could adversely affect euro exports and lower imported inflation. During 2017, the USD weakened by 14% against the euro. Inflation is lower than expected in the euro zone and is moving away from the target of 2%. 

Back on home territory, and all eyes will be on President Cyril Ramaphosa this week as pressure mounts to reshuffle cabinet and appoint a new minister of finance, which should support the already strong rand even further. 

Regards

Johan Steyn

Regards,

SECURITAS – Wealth Management