South African budget may ease downgrade fears

Significance

The first budget since new President Cyril Ramaphosa election by parliament last week, it outlines the National Treasury’s response to a 48.2-billion-rand (4.2 billion dollars) tax revenue shortfall for 2017/18. The government has raised the rate of value-added tax (VAT) for the first time since 1993, while committing to free higher education for students from poorer and working-class families, and to tackling the debt burden.

Impacts

• Increased excise duties on luxury goods will slow demand for these items, while an increased fuel levy will drive consumer goods inflation.
• Reduced infrastructure spending at the provincial level could hamper service delivery.
• Ongoing public sector wage talks could increase pressure on budgetary targets.