Budget impact on families: tax and financial planning impacts on the budget of the average family
The congenial Minister Godongwana delivered his 1st budget speech today. He started his speech by emphasizing that this is a ‘Tough Love Budget’, aimed at charting a course to growth and fiscal sustainability. Debt stabilization is one of the key objectives and the minister referred to this more than once.
The boon of stronger than expected tax collection, attributed mainly to the mining sector, was acknowledged with a sober added comment that ‘one sparrow does not make a summer’.
The Minister announced a departure from the trend of bailing out failing state owned enterprises; and instead focused on restoring the core functions of government. This is where the ‘tough’ part of the Tough Love budget comes in. Regarding the fight against corruption, the Minster underscored the important role of accounting officers to ensure the integrity of procurement processes, as well as the importance to differentiate between corruption and minor transgressions of the rules.
The focus on economic growth will be underpinned by, amongst others, infrastructure development. This includes improved infrastructure delivery oversight, upgrading bridges, water, sewerage, transport, hospitals, and schools. A bounce back scheme for businesses were introduced, with small business loan guarantees of R15 billion in total (facilitated by participating banks) as well as an equity linked loan guarantee support mechanism (of which details will be provided shortly). Collectively these initiatives are expected to drive growth and support job creation. The Minister furthermore confirms the previous announcement of a reduction in the corporate income tax rate from 28% to 27%, with certain additional measures to broaden the tax base to be announced in due course.
The ‘love’ part of the Tough Love budget was reserved primarily for the South African public. The Ministers announced an inflation based 5% adjustment to income tax brackets and rebates. Practically this results in an increase of the income tax threshold from R87 300 to R91 250 (for a taxpayer under the age of 65). The medical tax credit amounts were also increased to between R10 – R15, putting more money back in the pocket of taxpayers. The VAT rate will remain unchanged. A pleasant surprise was the announcement that the fuel level will also remain unchanged, as well as the Road Accident Fund (RAF) levy. By keeping the fuel level stable for the 2022/2023 tax year, the Minister effectively provides tax relief totaling a generous R3,5 billion to motorists. The carbon fuel levy will increase by 1 cent to 9 cents.
Unfortunately, this generosity was not extended to the dreaded sin taxes. Excise duties on alcohol as well as tobacco were increased by between 4,5% and 6,5%. A 340ml can of beer will now cost 11c more and a box of cigarettes will cost R1,03 more. Interesting the intention to introduce a new vaping tax as of 1 January 2023 was also announced. There is also a plan to introduce a new beer powder tax. Finally, sugar tax will also increase (by 2,31 cents per gram), after 3 years without any increases.
The Minister did not neglect to confirm the intention to implement the so-called two-pot system of retirement reform. This system is aimed at balancing the need for protecting livelihoods of people with the long-term prosperity of the nation. It encourages improved preservation of retirement savings in return for limited access to savings prior to retirement. The Minster positioned and stressed the important role of the retirement fund trustees in the decision to access retirement fund savings. Draft legislation can be expected towards the middle of 2022. Lastly, intended amendments to Regulation 28 were also announced, aimed at allowing investment in infrastructure by retirement funds. These amendments will be gazette in March 2022.
