Absa economist calls on South African households to save

There is a dire need for South African households to embrace a culture of saving because the domestic economy is experiencing a supply-side crisis, says Absa chief economist Christo Lus.

He adds that, in order to address the crisis, an increase in fixed capital formation is required and that this will have to be financed by savings.

"Steps to boost domestic saving have become highly desirable since the economy is suffering from a supply-side crisis. Domestic saving that is generated in the South African economy provides the wherewithal for the financing of domestic fixed capital formation."

Lus laments the low level of personal saving.

"Personal saving, in particular, is at abysmal levels. This is associated with the enormous increase in the willingness of individuals to incur debt in the past 25 years or so, accompanying the emergence of rampant consumerism and the availability of a mind-boggling range of credit facilities."

He proposes wide-ranging incentives to promote savings, including:

* Abolition of tax on workers' retirement funds;

* Tax exemption of interest income received by individuals; and

* Abolition of Secondary Tax on Companies (STC), which will effectively simplify corporate taxation and reduce the corporate tax burden.

Lus calls for changes in the tax regime, especially those provisions that adversely impact on personal saving.

"The tax system in South Africa heavily discriminates against saving, particularly by the more affluent. South Africa has, since 2002, also experienced a substantial increase in property and share prices, which has further dampened the incentive for saving.

"An environment in which personal saving is largely- or completely free of income tax has much merit. Such a dispensation would have social benefits for financially-distressed elderly people and would make it easier for South Africa to establish itself as a fledgling tax haven, in line with a rapidly-emerging international trend."