Following the delivery of the budget speech, Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, is relieved that VAT has not increased by the proposed 2%, as this would have slowed the positive momentum that has already been gained through the last few rounds of interest rate cuts.
However, the 0.5% VAT increase alongside other changes to help fund government spending will still have an impact on consumer spending. For example, failing to increase medical tax credits is likely to cause further strain on household budgets, which could make affordability a rising concern.
“It is disappointing that personal income tax brackets were not fully adjusted for inflation. Without a proper inflation-linked tax bracket adjustment, middle- and higher-income earners will pay more in real terms due to ‘bracket creep.’ This effectively reduces their disposable income, leaving less money for savings, home loan repayments, and property investments,” says Goslett.
“The proposed changes will inevitably add further financial strain on consumers already grappling with high unemployment and sluggish economic growth. As a result, fewer buyers are likely to be able to afford property purchases, which could lead to a decline in market activity and overall transaction volumes,” says Goslett.
If affordability does become more of a concern, Goslett explains that more people may opt to rent rather than buy, driving up rental demand and possibly rental prices. “Lower transaction volumes would then slow down property price growth, particularly in the mid-to-high-end market segments. This will also have a knock-on effect on real estate agents. A slowdown in sales would impact their commission-based earnings, which could cause the real estate sector as a whole to contribute negatively towards economic growth,” Goslett warns.
In addition to this, although VAT is not directly charged on the sale of existing residential properties, Goslett explains that it does apply to new developments, legal fees, agent commissions, and home-related services. “Even this small increase in VAT will, therefore, raise overall property acquisition costs which could dampen activity within the local property market,” he notes.
However, Goslett highlights that it is not all bad news for South Africans. “A positive takeaway from this is that the GNU does seem to be working. The fact that the 2% VAT increase did not go ahead as planned indicates that the coalition partners are able to find common ground – at least for the budget speech to be presented, demonstrating stability and cooperation, which is crucial for investor confidence. The proposed budget will now be debated in parliament and the VAT issue will be hotly contested,” he notes.
“Thankfully, there will be no fuel levy increases which should also help offset some of the negative outcomes from this budget speech. The fact that government is not relying on debt to fund its spending is also a positive outcome for our future economic stability and growth,” says Goslett.
