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#BUDGET2018: “The euphoric aftermath and the tough and hopeful Budget”

Gavin Smith, head of Africa for deVere Acuma, offered u|Chief his comments on South African Finance Minister Mr Malusi Gigaba’s 2018 Budget speech.

The idea of a sensible, intelligent and successful businessman at the helm of Africa’s largest economy had an instant effect on the value of the Rand against the major currencies. Whilst this has abated a little, the value increase is still present. 

All that being said, our economy is still plagued by fundamental problems that won’t dissipate with just good PR. Unemployment is at an all-time high, the effects of inflation can be seen on a daily basis at the supermarkets, crime is still high on the nation’s radar and the long-term effects of the ratings downgrades are still to be felt.

So, what about the key issues?

“The idea of a sensible, intelligent and successful businessman at the helm of Africa’s largest economy had an instant effect on the value of the Rand against the major currencies.” – Gavin Smith, deVere Acuma

Special Voluntary Disclosure Programme (SVDP).

SARS has already collected some ZAR 822m from the ZAR 1bn assessed in the SVDP. 2002 individuals made their voluntary disclosure and 305 have been assessed to date. The “target” of ZAR 4bn in additional tax revenue now looks realistic. This assessment comes from ZAR 35 bn in disclosure.

So, what does that mean for us, the taxpayer?

Well, for one it means that our “wealthy” have been squirrelling their funds away offshore for many, many years. Once the preserve of the very “rich”, offshore investment has become well within the financial means of our middle-class.

Once you needed millions to make an offshore investment viable (with expensive tax structures and opaque charging environments for us unsuspecting South Africa investors). Nowadays, with the everyday acceptance of vehicles such as Retirement Annuity Plans, the costs are well within the international norms of +/- 1% per annum, a welcome reduction from the normal expense ratios on South African investments. 

deVere Acuma Pty Ltd, being a completely independent organisation, has access to the leading providers in this market, such as Overseas Trust and Pensions and The Sovereign Group.

If you haven’t taken advantage of your overseas investment allowance or annual allowance or you have an existing discretionary trust that is (a) costing you too much and (b) is no longer effective for the preservation of your wealth in the eyes of SARS or you have existing offshore funds that could do with being reviewed or could do with exposure the global world of investment, a consultation with an offshore specialist is essential. There are a myriad of solutions available and we can help you navigate this often-complex journey.

Corporate “War chests”

Whilst the amount of cash held in reserve by our successful corporates is a moot point, one thing for sure is that there is a lot of it. Until this capital is properly employed, the upliftment of the vast majority of our population will be indefinitely delayed. Corporate (and national) growth needs capital to be employed, not sit around in treasury. 

Some accounts put the war chests at R 1.34 trillion whiles other suggest the figure could be as low as R578 bn. Either way, it’s a stack of cash that will be of more use than a few rands and cents on a packet of cigarettes or a can of beer.

“Growth needs capital to be employed, not sit around in treasury. Until this capital is properly employed, the upliftment of the vast majority of our population will be indefinitely delayed.” – Gavin Smith, deVere Acuma

GDP Growth

Whilst a very welcome increase, the growth forecast remains behind the pace of most of the developing world and well behind that of the major economies. The forecast of 2% for 2020 is certainly something to kick-start the recovery in the economy.

Education

ZAR 57 bn for fee-free higher education is a welcome move in the right direction and will go some way to alleviate any concerns regarding more fee-based protests in the coming year. 

Tax

  • An increase in the value-added tax rate from 14 percent to 15 percent. This kind of stealth tax has taken the UK rate of inflation up to 20% in recent years. Consumers should keep a wary eye on this.
  • A below inflation increase in the personal income tax rebates and brackets, with greater relief for those in the lower income tax brackets. This has to be a welcome move alleviating the tax burden on the very poorest amongst us.
  • An increase in the ad-valorem excise duty rate on luxury goods from 7 percent to 9 percent. If you “need” it then you have to pay for it.
  • A higher estate duty tax rate of 25 percent for estates greater than R30 million. Prudent estate planning has been a feature of both developed economies AND our own for many years. Whilst prudent planning has been a feature of good quality financial planning for many years, this item hits the uber-rich very hard making NOW the right time to review your arrangements or to put some decent, sensible, proven and cost-effective strategies in place.
  • 52 cents per litre increase in the levies on fuel, made up of 22 cents per litre for the general fuel levy and a 30 cents per litre increase in the Road Accident Fund Levy. Fuel levy hikes can only increase as our reliance on fossil fuels continue. It’s been a soft target in the US and Europe for decades and Government after Government has used it against the road users.
  • Increases in the alcohol and tobacco excise duties of between 6 and 10 percent. The “usual suspects” get hit again. 

VAT up to 15 percent: “This kind of stealth tax has taken the UK rate of inflation up to 20% in recent years. Consumers should keep a wary eye on this.” – Gavin Smith, deVere Acuma

Financial Regulation

Any sensible financial services outfit has to welcome better, more coherent and tougher regulation in the market in which it operates. Throughout all transformation in this area, we have to ensure that treating our customers fairly – and ensuring that customers are able to utilize all potential solutions (providing they are ethical and compliant) – must be at the forefront. Regulation has to improve the lot of the customer and not simply restrict his or her choice. We live in a global world with smaller degrees of separation, South Africans should have global solutions to their financial objectives as in the rest of the developed world.

“Regulation has to improve the lot of the customer and not simply restrict his or her choice. South Africans should have global solutions to their financial objectives.” – Gavin Smith, deVere Acuma

Offshore Investment and Retirement Funds

We welcome the Finance Minister’s commitment to increase the allocation to diversified offshore investments. With the JSE making up +/- 1.5% of global equity markets, this simply makes sense.