Saving in a constrained global and local environment
01 March 2013
(0 Comments)
Posted by: Erich Bell
Finance Minister Pravin Gordhan’s pulled a rabbit out of the hat once
again and delivered a Budget Speech that left most fairly relieved. The Budget
itself had a strong focus on saving in the midst of a challenging local and
global economic environment. The savings theme came through at both a personal
and environmental level. Very encouragingly, the Minister provided some details
on a new tax-free savings account that will be introduced in 2015. The savings
account will have an annual deposit limit of R30,000 with a lifetime limit of
R500,000 (adjusted for inflation) and will likely see the interest income tax
thresholds falling away over time. On another positive note the Minister
announced plans to harmonise the tax treatment of retirement annuities, pension
funds and provident funds with a uniform tax advantage of 27,5% of remuneration
on each form of retirement funding. He also encouraged employers to direct
their departing employees towards provident funds in order to preserve their
retirement benefits rather than squander them. Saving the environment will come at a short-term cost to households but
future generations should benefit from government’s proposed new carbon tax,
which will see the light of day in 2015. This tax was something of a surprise
but the Minister did, however, promise to soften the blow of the new tax with
an introductory tax-free exemption of 60% that will be phased out over
time. The current carbon tax on new vehicle sales was also increased and this
may inspire some short-term new car buying ahead of the increase. The R7 billion of personal income tax relief granted by Minister Gordhan
should be welcomed by individual taxpayers but the magnitude of his generosity
fell short of the R9,5 billion that he offered in last year’s budget. The tax
brackets were also adjusted for "bracket creep” but the nominal percentage
increase was less than the Minister’s own forecast for inflation and
individuals will ultimately be left worse off in real terms. The VAT rate and
the upper marginal tax rate were left unchanged and that was good news for all
the economy’s citizens but the promise of a Tax Policy Review may see changes
to those taxes and tax rates over the years to come. There were no real shocks in the budget other than the magnitude of the
budget shortfall for 2012/13. The revenue shortfall of R16,3 billion in a tough
economic environment explains the size of the budget deficit but the good news
is that the Treasury’s projection of the budget deficit for 2015/16 remains
unchanged at 3,1% of GDP - as tabled in the Medium - Term Budget Policy
Statement. Growth projections for the next three years have been lowered with
the economy forecast to grow at a revised pace of 3,8% in 2015 (from 4,1%),
still very short of the level needed to make a meaningful dent in the unemployment
rate. The increase in the fuel levy of 22,5c/litre was probably also more than
expected and not what cash-strapped travellers wanted to hear. Overall though there was a renewed commitment to stamping out corruption
and the appointment of a Chief Procurement Officer is testimony to government’s
resolve. The Finance Minister also made a renewed commitment to the
National Development Plan and the associated infrastructure programme. While
the planned R827 billion infrastructure spend over the next three years may not
make a big dent in unemployment directly, there should be many indirect
employment benefits over the longer term. Last year the Minister made a call for a greater level of co-operation
between the public sector and the private sector. He once again made a plea for
all of the economy’s stakeholders to work together to build the economy that we
all want to see. In the Minister’s own words, "South Africa’s economic outlook
is improving, but requires that we actively pursue a different trajectory if we
are to address the challenges ahead”. That is as much the responsibility of
government as it is for each and every South African. Source: Craig Pheiffer, Head: Private Client Asset Management, Absa
|