Financial Planning: How does the 2019 budget affect your financial plan?

What were the predictions for this year’s budget?
  • All pre-budget speculations indicated that a VAT increase of 1% or even 2% was inevitable. It would be an easy way of generating much needed additional revenue. But at what cost? The impact on lower income households could not be overlooked.
  • The Davis Tax Committee recommended a number of measures in their last report on estate duty, including wealth taxes and an increase in the estate duty rate. Many commentators anticipated that these measures would be adopted in this year’s budget.

What were the key changes?
  • When push came to shove VAT was increased to 15% with effect from 1 April 2018. This should result in R22.9 billion in additional revenue. The argument is that South African VAT has been much lower than the global average. Treasury did consider alternatives but these were ruled out in the end. The increase will affect all households, although Treasury believes that lower income households will be buffered to some extent because of higher than inflation social grant increases and zero rated goods. It remains to be seen whether this ‘relief’ proves sufficient.
  • From 1 March 2018 the estate duty rate will increase from 20% to 25% for the portion of the dutiable estate exceeding R30 million.
  • Donations will be taxed at a higher rate of 25% in respect of the portion exceeding R30 million with effect from 1 March 2018.


Future proposals being considered
  • An ‘emigration’ withdrawal should be permissible from preservation funds (not only retirement annuities).
  • Transfers to preservation funds after reaching retirement age should be permitted – but no once-off withdrawal will be allowed for these transfers.
  • The official rate of interest should be increased for purposes of low or no interest loans. This will impact loans provided by employers to employees, as well as loans to trusts by connected persons.
  • The R57 billion funding for free higher education should be provided over a 3 year period, with 2018 being the first year, providing funding for first year students from households with family income of less than R350 000.
  • Medical tax credits should be apportioned where more than one person has contributed to the cost.
  • National Health Insurance – medical tax credits will be increased at below inflationary rates to assist in funding the NHI.
  • Retirement reform (provident fund annuitisation) – the Minister indicated in his speech that NEDLAC discussions will continue during the course of this year.