Following the budget speech, it’s a good idea to take a closer look at how certain announcements in the speech affect your wealth. In this article, we consider the negative impact on your personal budget and provide tips to help you tackle the challenges. Then we delve deeper into the positive impact the budget will have on the South African economy.
NEGATIVITY COULD BE OVERWHELMING – REMAIN FOCUSED ON YOUR WEALTH
An overall 1% increase to your expenses
The decision to increase VAT from 14% to 15% will have a direct impact on affordability for most households. Although 19 basic food items are VAT-exempt, including dried beans, samp, maize meal, rice and brown bread, this is aimed specifically at low-income earners. However, healthy options, such as low GI bread and rye bread will now attract VAT.
Tip: As this increase will affect almost all your expenditure, you need to revise your household spending to absorb a one percentage point increase. Don't forget to consult a financial adviser if you need assistance.
Nice-to-haves will cost more
The excise duty on luxury items will increase by two percentage points. This is over and above the increase in VAT on these items. Goods defined as luxury items include cosmetics, fragrances, electronics and smartphones. While itemised as “luxury” goods, many would argue that this is part of regular expenditure! The excise duty increases on motor vehicles from 25% to 30%.
Tip: Don’t use this tax hike to justify buying electronics on credit before the tax increase on 1 April 2018. While you may pay around 3% more due to the VAT and excise duty increase, it’s not enough to offset the interest rate of at least 20% on your credit card.
Paying for the environment and our health
Sugar tax is to be introduced and, although the details have yet to be released, this is expected to raise an additional R1,9 billion as a “health promotion” levy. There are also increases on plastic bags, incandescent lightbulbs, and the usual increase in “sin taxes” will see tax increases of around 6% to 10%.
Tip: Use this incentive to cut back on sugar, alcohol and cigarettes – it will boost your health and your pocket. In the case of long-term insurance cover, it could also result in a reduction of your monthly premiums.
Using inflation to collect more taxes
After last year’s increase in the top tax bracket to 45% and a percentage increase in tax rates in 2016, no further personal tax increases have been announced. However, the top four tax brackets will receive no relief from fiscal drag – in other words, the tax tables will not be adjusted for inflation. Lower tax brackets will only receive partial relief. This will effectively cost income tax payers an additional R6,8 billion, raising the total amount collected in personal income tax to nearly R506 billion.
Tip: Use the many legal ways to save tax, such as increasing your contribution to your retirement annuities. For income earners in the top brackets, endowment policies can offer great tax protection.
Driving is becoming more expensive
From 4 April 2018, the taxes on our fuel will increase by 52c/l. This is made up of 22c/l for the fuel levy and 30c/l for the road accident fund (RAF). This means a 50l tank of petrol will cost you R26 more and, in total, you will be paying R168 in tax each time you fill up and paying R96,50 to the RAF. Hopefully the stronger rand will provide some relief, but every kilometre you drive will cost more.
Tip: Think before you drive and try to cut down on unnecessary trips or start to car-pool. It’s also a good idea to service your car regularly to ensure that you get the best fuel consumption out of your vehicle.
Wealth taxes still on the cards
Estate duty on estates worth more than R30 million will be increased from 20% to 25%. To limit the staggering of donations in an attempt to avoid the higher estate duty rate, donations above R30 million in one tax year will also be taxed at 25%.
Tip: If you’re a high-net-worth individual, make sure you get good advice around estate planning. This is an area that will continue to see increased taxation.
THE GOOD NEWS
More opportunities to diversify
The prudential limits for offshore allocation on regulation 28 funds (typically retirement funds) have increased by five percentage points to 30% for offshore, excluding Africa. The limit was raised to 10% for African continent investments (excluding South Africa). This means your retirement fund can have a total of 40% invested outside South Africa. This allows fund managers to diversify away from the highly concentrated South African stock market. The government also announced the launch of Project Bonds, which will be a new investment class, allowing pensions to invest in specific infrastructure projects.
Tip: You need to look at your investments holistically and take the offshore exposure of your retirement funds into account.
Boost for small business
Over the next three years, R2,1 billion will be allocated to a small business fund developed by the departments of Small Business, Science and Technology and the National Treasury to benefit small and medium-sized enterprises during the early start-up phase.
Tip: If you’re a budding entrepreneur or looking to start a small business as part of your retirement strategy, make use of the many funding opportunities that are now available.
Free higher education and training
New first-year students at universities and Technical Vocational Education and Training colleges in the 2018 academic year – whose family’s annual income is below R350 000 – will be funded for the full cost of study. This will be rolled out in subsequent years until all years of study are covered. Returning National Student Financial Aid Scheme students at university will have their loans for 2018 onwards converted to a bursary.
Tip: Even if you’re unable to take advantage of this opportunity, it’s a great way to assist families you may know. Use your networks and knowledge and offer to mentor young students so that they can pass and become part of the growth of this country.
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