2013/2014 budget speech to focus on increasing the tax base, reducing costs

Finance Minister Pravin Gordhan is likely to focus on efforts to increase the South African tax base in the next 12-24 months, which will have a significant effect on both companies and individuals alike.

This is the view of Hugh Hacking, Head of Retirement Fund Solutions at Old Mutual Corporate, who is also expecting the Finance Minister to provide clarity on savings reforms that were put into motion with last year’s budget speech.

“We do not expect to see any major surprises from The Minister this year. However, there are likely to be new announcements on tax regulations with a view to growing tax income in coming years,” he says.

Craig Aitchison, GM of Corporate Customer Solutions at Old Mutual Corporate says he believes Treasury has a view that personal income tax is probably as high as it should go, however, he warns individuals not to expect the same level of encouraging cuts to personal income tax that we saw last year. “Given the recent pressure to increase tax on particular industries, like mining, I think we will probably see an announcement of intent to review the taxation of employers, rather than actual changes this year,” he says.

Aitchison also says we should expect to see a bit more of how the budget links to the National Development Plan (NDP). “The President has positioned the NDP as government’s plan to drive economic and jobs growth in his State of the Nation address. I’d therefore expect the Finance Minister to review his budget in a way that correlates to the NDP.”

Aitchison stresses the need for Treasury to address the credit downgrades South Africa has been receiving and says the Minister needs to demonstrate that we have a sound economy, worthy of foreign investment.

Meanwhile, from a retirement perspective, Hacking predicts that the budget is likely to outline how the changes that were initiated last year, will be continued. However, with the Treasury still in consultation with stakeholders, like industry, on the proposed retirement reforms, he does not expect any surprises regarding retirement reform - but perhaps confirmation of Treasury's intention to bring reforms into being in the next year or two.

“We expect further detail on initiatives and reforms to strengthen retirement savings in South Africa. In line with this, it’s also likely that there will be further announcements around tax incentivised savings vehicles which were alluded to last year. In essence, we expect the retirement fund industry to get a better view on what these incentives will look like,” he says.

Hacking also believe that reducing the costs of savings vehicles will remain a focus of Minister Gordhan’s budget. Hacking says that Old Mutual is already preparing for this and working towards a future of lower costs in anticipation of a technical paper on costs due to be released by government in the next few months.

“We welcome any move by the minister to encourage savings in South Africa and we are looking forward to some clarity on the way forward in this regard. South Africa has one of the lowest savings rates in the world and our research has shown this to be a continuing trend. We understand that this is an issue that has become a high priority for government and we believe that the retirement industry in South Africa will have a very valuable role to play in this regard,” he says.