Finance Minister, Tito Mboweni, used the opportunity in the National Budget Speech to address the concerns raised by many South African citizens, corporates and international ratings agencies. While he clearly stated his intentions to face the challenges at SARS, State Owned Enterprises and reducing the public sector wage bill, there were no specific proposals to attract local and international investments that are required to create much-needed jobs.
Vimal Chagan, Divisional Executive of Retail Savings and Investment Solutions at Liberty says, “Low income earners will experience some tax relief as the primary, secondary and tertiary rebates were slightly increased with the current tax-free threshold moving up to R79 000. Social grants have also increased. While these changes are positive, the shortfall needs to be funded from somewhere.”
Chagan explains that this is where the middle to high income earners will feel the impact of these decisions the most. “By not moving the tax brackets, people who earn more compared to last year will pay more tax as they move into higher tax brackets. Together with increases in the fuel levy and other associated taxes, middle income households will bear the brunt of this conservative budget.”
The corporate tax rate and VAT rate remain unchanged which, together with the lower forecasted GDP growth rate, implies that growth in government expenditure needed to be curbed, so that SA's total debt-to-GDP ratio and interest cost remains manageable. Minister Mboweni has indicated that this is high up on government's agenda and various actions will be taken. In effect, government is now acting fiscally prudent in the management of its finances.
One disappointment from the budget speech is the failure to raise the maximum contribution limits for retirement savings, for tax deduction purposes, as well as the minimum or lifetime contribution limits for tax-free savings accounts. The savings rate of individuals in South Africa is quite dismal. The lack of these incentives results in more high income individuals investing their savings in discretionary vehicles.
Chagan concludes, “This was a difficult budget to deliver as Treasury recognises that it is not sustainable to continue spending to drive economic growth - debt levels eventually do catch up. However, there are existing tax incentives that individuals can take advantage of to make their financial freedom possible.”
No knee jerk reactions - make strategic financial decisions
To manage the impact of the budget speech announcements, Liberty Group Sales Director, Johan Minnie believes that consumers shouldn’t make drastic financial moves in anticipation of the future. Even though financial pressure will continue, it’s possible to maintain focus on the road to a successful financial future. He encourages consumers to chat to their financial advisers to identify opportunities and to strategically reassess their current financial plans.
Minnie says, “As an industry, we understand the dynamics and nuances of the economy and the impact it has on our savings culture. The reality is that everyone needs help in navigating their financial journey, and this is where financial advisers become valuable. The issue of cost is a real concern for many. However, a financial plan and solutions are always tailored to the client’s individual needs.”
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