Joe Average and the 2011 Budget speech

Gareth Stokes, FAnews Online Editor

Yesterday thousands of South Africans sat glued to their television sets as finance minister Pravin Gordhan delivered the 2011/12 Budget to parliament. I must confess I only caught snatches of the presentation, and had to rely on a downloaded copy of Gordhan’s speech, courtesy the National Treasury website, before tackling today’s newsletter. The speech was littered with big numbers, with the minister jokingly asking the house “how many zeros is that” after trotting out the “trillion” phrase for the umpteenth time. I’m going to gloss past how government will allocate the R808 billion left for national and provincial needs post debt servicing costs, and instead focus on how the 2011/12 budget affects Joe and Jane Average during tax filing season, and at the tills...

Changes to income tax thresholds

Gordhan announced a number of changes to the income tax thresholds. From March 2011 taxpayers will only pay on income exceeding R59 750, or R93 150 for those age 65 and older. There’s some welcome additional tax relief for older taxpayers with the introduction of a third rebate of R2 000 each year for taxpayers aged 75 and older. Said individuals will be able to “bank” R104 261 without paying any income tax. The interest rate concession wasn’t hiked as much as savers would have liked – but they’ll no doubt welcome the R22 800 in annual tax-free interest income for individuals below age 65, and the R33 000 for those 65-years and older. The foreign interest income threshold will remain at R3 700.

There were some interesting announcements about possible future tax innovations. Audit, tax consulting and financial advisory services firm Deloitte issued a number of tax updates following the budget speech, including this observation on incentives for saving: “Several countries use tax incentives to encourage people to save towards specific goals such as education, healthcare, housing or retirement, or to promote general savings. Government will explore two savings incentive schemes – one for housing (deposit for first-time homeowners) and another for higher education – as alternatives to tax-free interest income thresholds.” They haven’t ruled out the possibility of a more consistent tax treatment for all forms of capital income, including interest, dividends and capital gains.

Gordhan announced a very small concession for the tax-free lump sum benefit you can receive upon retirement, raising the limit from R300 000 to R315 000. However, this quoted directly from the budget speech transcript: “From March 2012, an employer’s contribution will be treated as a taxable fringe benefit, and employees will be allowed to deduct up to 22.5 per cent of taxable income for contributions to approved retirement funds. A maximum of R200 000 a year will be deductible. With a view to protecting workers’ savings, it is proposed that the one-third lump-sum withdrawal limit applicable to pension and retirement annuity funds should also apply to provident funds.”

You win some, and then you lose some...

The low and middle segments of the residential housing market should receive a small boost thanks to changes in transfer duty fees. Gordhan announced that the transfer duty exemption threshold will be raised from R500 000 to R600 000. Government will levy a rate of 3% to the transaction value from R600 001 to R1 million, an amount of R12 000 plus 5% to the value between R1.0 and R1.5 million, and an amount of R37 000 plus 8% to amounts above R1.5 million! This new rate structure applies to all properties acquired under purchase agreements concluded on or after 23 February 2011 – in other words with immediate effect!

Social grant recipients aren’t going to be too impressed with the latest budget. The state old age grant was upped a mere R60 per month to R1140 (although pensioners over the age of 75 will receive an extra R20). Foster care grants were only increased by R30 per month… And the grant causing all the school girl pregnancies – the child support grant – is hiked R10 / month in April (to R260) and by another R10 / month in October...

A new sin tax to discourage gamblers

The loudest murmur during Gordhan’s presentation followed his shock announcement on a withholding tax on gambling winnings. With effect from 1 April 2012, all gambling winnings above R25 000 (including those from the National Lottery) will be subject to a final 15% withholding tax! He topped this announcement with the usual “sin” tax and road-use and motor vehicle taxes.

Excise duties on alcoholic beverages will be increased by between 4.5% and 10.3%, amounting to 6.4 cents for a 340ml can of beer, 13.5 cents per bottle of wine and R2.86 for a bottle of spirits. He hiked the taxes on tobacco products by between 6% and 10.2%, the equivalent of 80c on a pack of 20 cigarettes. We can also expect to pay another 18c per litre of fuel (or diesel) thanks to a 10c/litre increase in the general fuel levy and another 8c/litre hike in the Road Accident Fund levy.

The ad valorem excise tax on new motor vehicles remains, but has been hiked from 20% to 25% for vehicles costing more than R900 000. That’s going to annoy a number of stakeholders in the luxury vehicle space – including those taxpayers who cannot reconcile international vehicle prices with those charged at home… I was chatting with a visitor from Canada yesterday, and nearly fell off my chair when he told me how much his new Dodge Caliber had set him back!

Encouraging taxpayers to do their share and other stories

Gordhan made plenty of noises about making sure taxpayer funds were well spent. He encouraged whistle blowing and promises further aggressive investigations into tender irregularities, tax evasion and corruption. Perhaps the finance minister will spend a few minutes studying the latest Public Protector report into goings on at the SAPS and ministry of public works!

To encourage taxpayers to come forward to regularise their tax affairs without the imposition of additional tax, penalties and/or interest, the voluntary disclosure programme that began in November 2010 will remain open until 31 October 2011. Gordhan said more than 1 200 applicants had already come forward under the programme.

The big “will they or wont they” question...

And now, for the moment you’ve all been waiting for – an announcement on National Health Insurance (NHI). The government has repeatedly threatened to push through its much-criticised health reforms beginning 2012. I fully expected the budget speech to detail how this venture would be funded – but it was not to be… Gordhan’s words on the contentious topic: “We will consider and consult [his emphasis] on options for meeting the funding requirements, including a payroll tax (payable by employers), an increase in the VAT rate and a surcharge on individuals’ taxable income.” We will have to wait until the 2012 budget for further clarity – because government clearly doesn’t want us to get a feel for the “pain” so close to municipal elections!

Editor’s thoughts: Gordhan’s 2011 budget speech spans 46 typed pages. I’ve tried to cover the major changes as they apply to Joe and Jane average… But there are obviously many other changes which impact on your businesses and financial intermediary practices. Have you studied the budget speech yet – and if so then which of Gordhan’s changes most affect your business? Add your comment below, or send it to gareth@fanews.co.za