Exactly one week from today South Africa’s Minister of Finance, Nhlanhla Nene, will unveil his inaugural budget when he takes to the podium at 14:00 pm.
I hope that the 2015 budget announcement will be less eventful than the drama that unfolded since the opening of parliament last week but I am sure that the content of the minister’s announcement will be scrutinised closely to find out how our pockets will be affected by the current state of our national economy.
We know from the minister’s medium term budget presented last year that government drastically needs to increase revenue and reduce spending to close down the growing budget deficit. In short, we must pay more taxes and the government needs to spend less of our taxes. Minister Nene has definitely been placed between a rock and a hard place!
South African citizens are already suffering financially due to the high levels of unemployment, constant increase in electricity rates and food prices and at the same time, a large number of people struggle to access basic services like clean water, health care and quality education. Here in Gauteng we also have the eTolls to consider when preparing our monthly budgets and since Eskom cannot guarantee a stable electricity supply to consumers, we have to deal with the consequences of power surges and food getting spoilt due to lack of refrigeration.
Blatantly increasing tax rates will not sit well with the taxpaying community therefore the minister needs to be creative when implementing measures to increase revenue. Adjustments to the existing marginal income brackets could be applied at a rate less than inflation to insure some tax relief, but definitely less than previous years. We currently have a second highest marginal income tax rate of 38%, which is 2% below the highest rate of 40%. To ensure that higher earners bear the burden of paying more taxes, the minister could consider either removing the rate of 38% to increase the taxpayer base in the 40% bracket or just increase the rate of 40% to 42%.
It has already been announced that contributions made towards income protection policies will no longer be allowed as a tax deduction therefore PAYE could increase slightly. With the retirement reform being postponed for at least another year, taxpayers will no longer be looking forward to additional tax relief on their retirement fund contributions and the only additional relief we might expect is the introduction of tax-free savings accounts (which will only benefit those with disposable income available for saving).
It is as certain as death and taxes that the only thing we can predict for sure is that sin taxes will increase heavily. There will be no better time than now to quit smoking and drinking to lead a healthier lifestyle and as a result, spend less on medical expenses and then put your new disposable income into a tax-free savings account (if SARS doesn’t get hold of it through higher income tax rates!).