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2018 Budget Review

21 February 2018

Consumers to bear the brunt of a tough budget

Key takeaways

  • VAT rate raised by 1 percentage point to 15%.
  • R36bn in tax increases and R26.4bn expenditure cuts in 18/19.
  • R12.4bn allocated for fee-free higher education in 18/19
  • Should be enough to delay a Moody's downgrade, but action on structural reform needed before midyear reviews to stave off a downgrade completely.

Macroeconomic outlook

The economic environment has improved markedly since the 2017 MTBPS, largely on the back of accelerating global growth and an improvement in local sentiment. The better domestic backdrop was highlighted by Treasury's slight upward revision to their 2018 household consumption forecast (1.7% from 1.2% in the MTBPS) and a much larger 1.4 pps increase in their gross fxed capital formation expectation. These two drivers saw the GDP growth forecast lift from 1.1% to 1.5% this year, rising to 2.1% in 2020 (Table 1). The increase in VAT necessitated a modest upward revision to the infation forecast (5.3% this year).

Table 1: Macroeconomic forecast revisions

Source: National Treasury, FNB Economics


Tax increases worth R36bn were proposed in the 2018/19 budget speech. The bulk (84%) of the revenue will come from a higher VAT rate and limited fscal drag. The value added tax rate (VAT) was raised by 1 percentage point to 15% which adds R28.7bn to revenue. Treasury acknowledged that raising personal income tax rates further would have negative consequences for growth, and instead opted to provide limited relief for fscal drag (income categories not adjusted for infation) which will add R6.8bn. R6.3bn relief was apportioned to tax payers earning less than R750,000 per annum.

Medical aid tax credit refunds will also be adjusted by less than infation and is expected to net R700m for the fscus. An increase in estate duty from 20% to 25% for estates worth R30m or more will add only R150m, but a 52c/l increase in the general fuel levy, higher excise duties on alcohol and tobacco, as well as the introduction of the sugar tax (health promotion levy) will add a combined R4.5bn. An increase in the ad valorem excise duty from 25% to 30% will be imposed on motor vehicles, which could blunt some of the recovery expected in new vehicle sales. The scale of the tax increases are likely to be growth and infation negative, but we expect some of the pressure to be offset by more accommodative monetary policy over the short to medium term.


Over the medium, expenditure is expected to grow by 7.6% to R1.94 trillion in FY20/21. The budget once again did not do much to address the expanding public sector wage will. The wage bill is still expected to grow by 7.3% over the medium term. The budget notes that additional measure may be required should the outcome of the pending wage negotiations not reach a sustainable agreement.

Expenditure has been reduced by R85.7bn over the medium term - the government aims to achieve this by reducing spending on capital transfers by R39.7bn, goods and services by R16.5bn and currents transfers by R27.4bn. National treasury recognizes the reductions will shift the composition of spending away from capital and towards consumption expenditure. This in our view is not sustainable in the long-term (Figure 2).

Additional spending:

  • R57bn towards fee -free tertiary education
  • R4.2bn for National Health Insurance
  • R2.6bn to social grants, to partially offset the impact of tax increases on the poor
  • A provisional allocation of R6bn set aside in 2018/19 for drought relief in several province
  • Additions of R5bn in 2018/19, R3bn in 2019/20 and R2bn to contingency reserve

Table 2: Revenue measures

Source: National Treasury, FNB Economics

The expenditure ceiling has been lowered marginally over the medium-term; it nonetheless, expects a R2.9bn breach in FY2017/18 due to the recapitalization of SAA and SAPO.

Figure 2: Consolidated expenditure by economic classification

Source: National Treasury, FNB Economics

Figure 1: Revenue and non-interest spending forecast

Source: National Treasury, FNB Economics

A narrow deficit, stronger currency and lower borrowing costs is expected to stabilise government debt. Gross national government debt is expected to rise to 56.2% of GDP in FY 2021/2022 and gradually decline to 55.3% of GDP in 2025/26. This is notably better than the 60% rise in debt that was projected in

Figure 4: Government debt

Source: National Treasury, FNB Economics


The government is back on the fscal consolidation path, while the rate is slower than what was proposed in the BR 17, it is considerably better than what was proposed in the MTBPS. The proposed tax increases, expenditure cuts and improved growth outlook are expected to reduce the consolidated budget defcit to 4.3% in FY 17/18. Over the medium term the defcit is now expected to stabilise at 3.5%

Figure 3:Consolidated budget deficit as % of GDP

Source: National Treasury, FNB Economics

Risk to the fiscal outlook

The biggest risk to the fiscal outlook are uncertainty around the growth forecast, the contingent liabilities of state owned entities and the public sector wage bill.

Bottom line

Today's budget has put government finances back on a trajectory that attempts to consolidate the fiscal position over the next few years. We believe it will be enough to delay a downgrade by Moody's next month. However, we are concerned by the drastic shift in expenditure which now leans more to consumption rather than capital expenditure. If maintained the government could potentially be setting itself up for further downgrades down the line. Furthermore, the budget was light on detail regarding structural reform, but we are mindful that such policies are not part of National Treasury's mandate. Lifting the structural constraints will require policy responses that involve all state departments and also align the country's policy trajectory with that of the National Development Plan. With an increased tax burden, it is vital that

Disclaimer: The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by FirstRand Group Limited and / or the authors of the material.

It's the festive season - but also for burglars!

Don't let your business premises become a target over the December holiday period. Statistics show that business burglaries during this time of the year increase exponentially, especially in empty offices and buildings.

Taking out business insurance can certainly help small businesses recoup financial losses incurred from theft or burglary, but the inconvenience and potential impact on operations pose a serious threat that financial compensation cannot always make up for. Festive season losses are quite large and happen over a relatively short period. Taking precautions requires a twopronged approach.

Firstly, you need to make sure you have appropriate business insurance cover, which means insuring all valuable assets and understanding the replacement values of those assets. It's a good idea to contact your broker and make sure all monetary values for your business assets are up-to-date.

Business interruption cover is something that all businesses should consider, but it can be very technical and business owners should contact a trusted broker to discuss the most appropriate option.

Secondly, there are some practical measures you can take to protect business premises and property during the holiday season - always remember that thieves do not only steal physical assets, but can also steal electronic data:

Switch off appliances. Turn off lights, servers and appliances that do not need to be operational during the festive season. Not only will you avoid accidental fres, but you will also save on your business' utility bill. Conduct a thorough inspection for potential fre hazards. Make sure you dispose of newspapers and store all fammable material away safely.

Lock all valuables: Burglars will target computers, laptops, devices and stock. These items should ideally be placed in a secure room or safe, and should not be left lying on desks or in the line of sight.

Activate alarm systems: Test your alarm systems and make sure they work properly. It's always a good idea to activate new and stronger passwords and alarm codes from time-to-time. Alert your alarm company of the period over which your business will be closed, and supply them with at least two emergency contact people.

Burglar bars: Secure burglar bars and place them on the inside of any windows, this acts as a deterrent and can slow burglars down. Make sure your surveillance cameras are working, if you have them. Signs warning of the presence of CCTV cameras can deter crime, so place them in plain sight.

Keep records of all movable assets: Take an inventory of computers, stock, keys, and gate remotes. Also, list all serial numbers for equipment - this helps to speed up the insurance claim process in the event of theft.

Safeguard essential documents and information: Ensure that the documents that are essential to your business, such as loan agreements, insurance policies, business contracts, shareholders agreements and most importantly, documents containing client details, are safely stored away and backed up. Where you have client details in electronic format, it is essential to ensure that this is safely stored.

In these tough times, when businesses are struggling to survive, the last thing you as a business owner want is to be caught off guard by a robbery. If you don't take the necessary precautions and put tighter security measures in place, or make sure you are not underinsured, you're laying yourself open to the threat of festive season crime

To make sure that your business assets are adequately covered or for any questions, contact one of our FNB Insurance Brokers ( ) and quote Business Insurance as a reference.

Grow your business with the FNB Business Directory

Running and growing a business is not always easy, especially in these tough economic times. Business owners need to keep their existing clients happy, manage their staff and attend to all administrative, marketing, financial and accounting needs. They also need to constantly adapt their product and service offerings to stay relevant (more so now than ever before) and of course they need to carefully manage costs to ensure maximum profitability.

One area that small business owners often fnd challenging is growing their business and attracting new clients. This is understandable as there are only so many hours in a day, and these hard-working individuals have much to do in running their business. Marketing your business can be done very smartly nowadays, largely due to the growth of digital marketing platforms such as websites and social media networks, and having the know-how to use these platforms in conjunction with conventional methods such as print, fyers and brochures, and face-to-face meetings with prospective clients. Online advertising across premium websites or through advertising networks like Google Display Network has become a must-have part of the marketing mix, but there are also other ways of tapping in to the power of online advertising.

FNB understands all of this and recognises that it can be very hard and often expensive to grow your business. With this in mind FNB has developed the FNB Business Directory, a portal that can expose your business and its products and/or services to the entire FNB banking customer base. The Business Directory lists and displays the information of participating FNB businesses and can be viewed on and on the FNB App. Your business's details are displayed in Google map view making your business easy to find. Additional functionality includes the ability to upload a company logo as well as digital versions of documents such as product lists, catalogues and menus.

FNB Customers browsing the Business Directory will be able to call or email you from the FNB App once they have selected your profile. The Business Directory is FREE to all FNB Business Banking clients - all you need to do is register and populate your business's details using your Online Banking profile or through the FNB App

For more info on the Business Directory or to register,email and quote BTBD as a reference or call 087 730 5790 .

FNB Increases Support for SMEs

FNB Business is taking proactive steps to increase and diversify existing levels of support for SMEs in line with the objectives of the National Development Plan. The bank is implementing strategy that supports government's national imperatives to accelerate transformation and inclusive economic growth

FNB is well positioned as a leading business banking franchise. We continue to focus on understanding the needs of entrepreneurs - something we call "businessism" - basically understanding the challenges that businesses have, and trying to help solve for this. FNB has made great strides in increasing access to digital banking offerings enabling young businesses; facilitating quicker and effcient access to credit and fostering inclusivity in lending activities, ultimately supporting the development of the SME ecosystem.

FNB's strategy encompasses four primary objectives:

  1. Providing innovative and market leading solutions across all business segments with a strong focus on fast growing niche areas such as Agriculture, Franchising, Medical Businesses and Education
  2. Providing real value to customers through the provision of non-traditional banking solutions like Instant Accounting, Payroll and BEE accreditation; cloud based document management solutions; CIPC registrations and maintenance, to mention a few
  3. Enabling, growing and supporting financial inclusion and access to market for SMEs through Structured Lending, Enterprise Development, Supplier Development and Preferential Procurement initiatives
  4. Development of value propositions for underserved markets yielding economic and social impact

The public-private sector partnerships have proved to be highly effective within SME ecosystems in emerging markets. He points out that FNB Business is no stranger to working with the public sector and has a number of active initiatives already operational, including:

  • FNB's Vumela Enterprise Development Fund partners with the Jobs Fund to mobilise funding to early stage, scalable SMEs with the primary aim of effcient job creation. The Vumela Fund has committed in excess of R200m, supporting 1591 jobs to date;
  • Working closely with the Gauteng Provincial Government to incubate and mentor their SME suppliers, aiming to reach 1,000 entrepreneurs through this engagement;
  • FNB Agriculture has risk sharing initiatives with both Khula and SEFA totalling R220m, and is working together with the Banking Association and the Department of Rural Development and Land Reform to facilitate land reform transactions;
  • Furthermore, FNB has established an academy which provides technical assistance and training to Public sector

FNB will continue to seek partnerships to access alternate funding sources, risk sharing relationships and business development support platforms. An example of this is the additional funding FNB has accessed from the IFC for deployment into the SME sector. A progressively deeper engagement could stimulate opportunities for FNB to play a leadership role in currently under-banked and underserved markets. Our commitment to empowering SMEs includes helping businesses navigate the legislative and regulatory requirements in setting up a business, which we facilitate through FNB's CIPC business registration partnership, as well as Instant BEE certifcation offering.

FNB Business Instant Solutions includes a suite of offerings including an accounting system, which also affords payroll administration, invoicing functionality, cash management and budgeting. This offering is provided free of charge to the entrepreneur. These offerings are making a signifcant difference, with 185,000 businesses availing of Instant Solutions and more than 3,000 CIPC applications being facilitated monthly.

Our ongoing contribution to the national agenda remains a priority to us and we are excited about the opportunities and latent value we believe our strategy will unlock.

For more info, visit:

The FinTech Gold Rush

Legend has it that a young boxer and entertainer had a conversation with an old Australian miner in Kimberley, South Africa, in the 1870's. The young man learned that Kimberley's volcanic pipes were made from two types of rock. The top layer was yellow and easy to mine, while the blue rock underneath was harder to mine, but had a far higher diamond yield. The young boxer bought as many concessions as he could from miners selling when they hit blue rock. Twenty years later, Barney Barnato would become one of the richest men in South Africa's history.

Like young Barney Barnato, we are nowadays faced with yellow and blue rock decisions each day - some could help us become wealthy. It all boils down to our knowledge of the trends, timing and having the capital to invest.

The emerging industry now is not mining, but rather the FinTech sector, where financial services are provided using software and technology. For many the FinTech era can be likened to the diamond rush - if you have the knowledge, you can turn it into wealth. So if you had bought $1,000 worth of the cryptocurrency Bitcoin in 2010, when it was trading at around 6 cents for most of the year, you would today have an investment worth $81 million

Aside from cryptocurrencies, there are other forms of non-physical digital currency that demonstrate our pursuit of a cashless society. In East Africa, M-Pesa is a good example - it's gained traction by enabling money transfer using cellphones. M-Pesa did not succeed in South Africa, in part due to the success of competitors like FNB's eWallet. With an eWallet you can get cash from any FNB ATM or selected retailers for up to R5,000 a day without opening a bank account. A recent cashless trend is where a physical card number is converted to a digital token, further securing sensitive card information. You can then use the token to make payments in apps such as Google, Apple Pay and FNB's Banking App. Cashless has now moved virtual, and a virtual currency is issued and usually controlled by its developers. It can be used and accepted by members of a virtual community.

Blockchain controlled virtual currencies, are pegged as the innovation 'to watch'. It was developed in 2008 by an unknown group of developers and can be described as an incorruptible, decentralised public ledger of all transactions (such as Bitcoin) that have ever been executed. Think of Blockchain as thousands of data spreadsheets linked or chained together on the internet that cannot be copied. The spreadsheets are all regularly updated, so that all existing spreadsheets ultimately share the same information. A single version of the spreadsheet can be viewed by all participants simultaneously. Cryptocurrencies recorded in blockchains are being described as the new digital 'gold'; with the granddaddy of them all, Bitcoin, currently having clocked up around $67-billion worth of currency value

Bitcoin users are issued with a bitcoin address called a public key, and the Bitcoin is issued with a private key. This key is the 'password' that allows an individual to spend his or her bitcoins, and they can keep their bitcoins in a digital wallet or vault. Like the diamond and gold rushes of old, Bitcoin also has miners. Instead of shovels they use graphics cards and computers, and they literally sell computer processing power in return for payment in fractions of the cryptocurrency. The fraction is pre-set in the crypto's algorithm and can be seen as an inflation rate that is kept steady in the same way gold is mined at a relatively steady rate hence maintaining its value. Simply put, the miners validate a transaction and its price, and put this information into a data block. The speed at which they are first to put a valid block into the chain is called the hash rate, and the faster the miner's hash rate, the more cryptocurrency they earn.

Cryptocurrency FinTech is disrupting the traditional notions of a central bank controlling physical money flows and it is raising interesting debates about legal status, money supply, exchange controls, and tax reporting requirements. Japan and South Korea have already approved Bitcoin as a legal tender, with Russia and India braced to follow. In other countries, like South Africa, to withdraw Bitcoin you have to transfer your Bitcoin back to your local currency bank account. You can, however, use Bitcoin to buy at a number of online retailers such as Takealot and Bidorbuy.

These Fintech 'rushes' are the more valuable to learn - they may be more complicated than the mining of old, but their supporters argue it's far less labour-intensive than digging in a deep hole in Kimberley.

Invest your cash reserves wisely

Managing your SME business' cash fow is not just about maintaining revenue levels and ensuring that money owed is collected timeously, it is also about managing your cash reserves and balancing the risk of any investments you might make

Ancley Jacobs, CEO at FNB Savings & Cash Investments, maintains that there are three key considerations to bear in mind regarding investing any cash reserves on behalf of your business. Apart from the obvious desire to make sure the invested capital is fully guaranteed, you should ensure that you uphold the main principles:

  • Determine what percentage of your cash reserves you require instant access to, for unexpected expenses or cash fow management and then deposit into an account which gives you instant or quick access to your savings; (e.g. the Money on Call, 48 Hour Cash Accelerator or 7 Day Notice)
  • Make sure some of the cash reserves are invested for the longer term for planned future expenses such as tax or staff bonuses; (e.g. the 32 Day Flexi Notice or our range of Fixed Deposits
  • Ensure that the savings or investment account gives you a return that curbs the effects of inflation.

If you are uncertain of future cash flow needs, then an account such as the FNB 48 Hour Cash Accelerator will balance the need to have quick access to savings, without compromising on healthy growth. "The solution is developed with the specific cash flow and growth needs of businesses in mind and, as such, it combines a very competitive interest rate with an appealing 48- hour notice period to access cash invested, coupled with the assurance that the capital and quoted returns are fully guaranteed," says Jacobs.

For more information, e-mail us at

eWallet Pro helping the recycling industry

Sadly there aren't yet enough businesses with women at the helm, but those who are making their mark have done so not only through their business acumen and attitude, but also with a little help from using appropriate cash management solutions

Monique Van Niekerk runs a business called Gauteng Metal Recyclers. She has seen the company grow from two to thirty six employees since 2006. Much of this growth took place when she joined as financial manager, which lead to her fnally taking over the helm and buying the company in 2014.

Smart financial management and using cash management solutions and services has helped the business through some tough times, "from one vehicle to a small feet of nine skip trucks, bakkies, other vehicles & machinery."

The company focuses on processing and recycling scrap metals, and runs a network of skip bins dotted around various locations, as well as relying on collecting metal from suppliers, some of whom are small vendors who bring in scrap metal from off the streets. Monique pays these suppliers in cash, which for many years meant holding fairly large quantities of notes on her premises. Following an armed robbery, the business explored alternatives that would be safer and more cost efficient. Monique started using FNB's eWallet Pro, which enabled the digital transfer of money to vendors, and the purchase of scrap metal from smaller suppliers who have no formal bank account - their payments can be made to cellphones or reloadable eWallet Pro cards.

eWallet Pro is a solution that is available to all FNB customers who have access to its Online Banking Enterprise platform. It enables businesses to make payments without the risk and cost associated with handling cash. Many FNB customers use eWallet Pro to pay wages to staff who have no bank accounts, issue eWallet Pro cards for allowances and even petty cash. For more information please contact the eWallet Pro team at and quote BTWP as a reference.

Surviving tough times requires a survival strategy

Every entrepreneur has heard the adage "cash fow is king", and they know that effective cash fow management is essential for business survival. For your business to stay on route, it requires a strategy for day-to-day management as well as razor sharp focus on the specifc financial areas of your business. This is especially true in tough economic times when external factors out of your control will impact your business.

Through understanding a business' working capital cycle, it will assist an entrepreneur in identifying those specifc areas of the business to focus on. If you can reduce the number of days it takes to collect money from your debtors, or stretch the terms you get from creditors when the pressure is on, you automatically enhance your business' cash fow.

In an uncertain economic environment, there are added pressures on your debtors and creditors, which in turn can have a knock-on effect on your business if sound financial principles are not applied. The right banking partner can be your survival guide in tough times and help you find the right financing solution, to get your business back on route

Great examples of survival tools are our Debtor and Stock financing solutions that help businesses pay suppliers while they wait for their debtors to pay them. Our working capital experts will tailor a funding solution using your debtors and stock to meet your unique financing needs. For more information e-mail and quote BTDF as a reference

Reduce business costs through cashless payment solutions

There probably isn't a business that isn't considering how to reduce costs as it navigates its way through the frst few months of a technical recession and South Africa's credit ratings downgrades. One area to explore is how you handle cash payments.

Instead of carrying cash on your premises or issuing countless cheques, or paying staff who have no bank account in cash, consider using a digital payment solution - more commonly referred to nowadays as a mobile or digital wallet payment. FNB offers companies a digital payment solution called eWallet Pro, through its Online Banking EnterpriseTM platform, allowing affordable payments to anyone, without their need for a bank account.

Withdrawing of cash and issuing of cheques cost businesses at least R570 and R950 respectively for just 10 people, while eWallet Pro will only cost R110! These kinds of solutions are gaining in popularity and are particularly relevant in our African context, where large numbers of the workforce are not necessarily formally banked. It's not only a practical solution, but it can also save on costs that can rapidly multiply and add up to signifcant charges.

There are a number of options - so you can choose to pay anyone with a valid South African cellphone number by 'transferring' a payment directly to their cellphone, or you can issue them with a reloadable eWallet Pro VISA card, and simply load the amount due to them onto the card using the bank's Online Banking Enterprise platform.

There are three kinds of digitally reloadable cards; an eWallet Pro Generic card and Gift card, used for employee solutions such as salaries, wages, allowances or incentives and business solutions such as loan payouts, aggregator payouts or petty cash. There are also the Merchant Restricted cards, which are used by many companies, for example, the Medical Aid, Insurance and Retail sector, and you can choose to have the card co-branded with your company logo on it. The card holder uses the card at any pre-selected pre-approved outlet of your choosing.

eWallet Pro removes the risks and costs associated with handling cash and cheques, and using eWallet Pro will make payments simpler, safer and more efficient.

For more information on eWallet Pro go to or to be set up with eWallet Pro, please contact the eWallet Pro team at and quote BTWP as a reference.

The Rebellion


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Dudu Msomi, Founder, Busara Leadership Partners

Dudu Msomi shares two interesting and informative scenarios with us, which demonstrate a couple of her processes - and provide valuable food for thought for any business leader.


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Ryan Kitching and Sanjeev Orie sit down to discuss The Rebellion - a global marketing company using FNB Instant Accounting.


Business Tips

It's the festive season - but also for burglars!

Don't let your business premises become a target over the December holiday period. Statistics show that business burglaries during this time of the year increase exponentially, especially in empty offices and buildings.


Grow your Business with the FNB Business Directory

It's one thing to run a business, it's another thing to market it and grow it.


Invest Your Cash Reserves Wisely

Managing your SME business' cash flow is not just about maintaining revenue levels and ensuring that money owed is collected timeously, it is also about managing your cash reserves and balancing the risk of any investments you might make.


eWallet Pro Helping the Recycling Industry

Sadly, there aren't enough businesses with women at the helm, but those who are making their mark have done so not only through their business acumen and attitude, but also with a little help from using appropriate cash management solutions.


Surviving Tough Times Requires a Survival Strategy

Every entrepreneur has heard the adage "cash flow is king", but how that translates into day-to-day tactics for your business, requires razor sharp focus on specific financial areas of your business, especially in tough economic times when external factors out of your control will impact your business.


Reduce business costs through cashless payment solutions

There probably isn't a business that isn't considering how to reduce costs as it navigates its way through the first few months of a technical recession and South Africa's credit ratings downgrades. One area to explore is how you handle cash payments.


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