Finance Minister Malusi Gigaba delivers his Budget speech in Parliament on Wednesday. Picture: Phando Jikelo/ANA Photo

Johannesburg - South Africa's banking association said on Wednesday finance minister Malusi Gigaba's 2018 budget showed the government willingness to take some of the hard decisions necessary to restore fiscal stability, but much more serious work needed to be done to ensure fast, sustainable economic growth.

In his budget speech to parliament, raised his growth forecasts but raised some taxes included value added tax, saying despite an improved outlook the government still faced a revenue gap of R48.2 billion in the current year, which carries through to the outer years of the medium-term expenditure framework.

Gigaba said new tax measures would raise an additional R36 billion in 2018/19, mainly through the higher VAT rate of 15 percent from 14 percent, and below-inflation adjustments to personal income tax brackets.

"Under the present difficult circumstance, it is a fair budget that seeks to fairly distribute the hardships that now face us as a country," The Banking Association South Africa said.

"While the one percent increase in VAT was necessary, we are aware that it will be a drag on consumer spending, a major source of economic activity in South Africa."

"Considering this, the smaller increase was a reasonable decision," it said, adding that businesses and consumers would also feel the effect of an increased fuel levy.

The decision to increase VAT was an important signal that government was willing to take unpopular decisions to restore the fiscal health of the country and would boost investor and business trust and confidence, the association said.

The banking association applauded the renewed commitment to good governance in the public service – especially the South African Revenue Service – and state-owned enterprises, but said much more needed to be done to recover billions of rand lost to corruption and fruitless and wasteful expenditure.

The Public Servants Association, which represents hundreds of thousands of public-sector employees said it was  concerned about the detrimental, ripple effect on especially middle- and low-income earners of the VAT increase and a 52-cents increase on the fuel levy.

“The PSA understands the need to grow the GDP, but the poor should not pay a higher price to get us there,” PSA General Manager, Ivan Fredericks said.

Environmental group Greenpeace Africa said Gigaba's budget speech to parliament failed to adequately address energy, current electricity investments in coal and nuclear having massive implications for the country’s economy.

"If the government is serious about water scarcity, climate change and a turnaround strategy for (cash strapped power utility) Eskom, the only viable option is for the utility’s entire coal-based business model to be completely revised, and for water-intensive projects like mega coal-fired power station Kusile to be cancelled," Greenpeace Africa said.

African News Agency/ANA