REFLECTIONS ON THE 2024 NATIONAL BUDGET REVIEW
This year’s presentation of the National Budget was always going to be a tough one for South Africa’s Finance Minister, Enoch Godongwana. Declining tax revenues, increased spending and very weak economic growth all contributed towards a very harrowing picture. The money is running out and the only solution was to increase tax revenue from the South African tax base. Whilst there were no direct increases of tax there were a number of adjustments that will still boost the coffers and will have to come out of the taxpayer pocket. In this month’s Financial View, we look at some of these adjustments.
The National Treasury 2024 Budget Review document makes for some interesting reading. It is lengthy at 277 pages, but some very telling facts are contained within. The first takeaway is their review of the number of individual taxpayers in the country as contained in table 4.5.
There is a total of 14 million registered taxpayers within the country but close to half of those fall below the tax threshold and pay no tax. The remaining 7.4m pay all the tax. This means that only 12% of the population are paying tax, supporting the other 88%. Consider that we have 28 million grant recipients and it would appear that the major focus has to be on the creation of jobs – no real plans around that contained in the budget though.
If one looks at the top 3 tax brackets, those earning just over R70k per month. There are 860k individuals in there or 1.4% of the population, paying a whopping 58.7% of all individual tax. Does the government realise that it is these people that pay their salaries, allow for their lavish lifestyles and support all the people that receive grants. They should place more emphasis on looking after the funds they receive and ensure that the funds are properly spent. During these tough times they should be doing everything they can to cut down on wasteful expenditure, corruption and crime and make the country and attractive destination for business to flourish. In this way we will see the economy grow and along with it the tax base.
Income tax table adjustments
The income tax table for the current year remains unchanged. In doing so SARS estimate that they will raise additional taxes of R16.3bn. You may ask how when something is unchanged it can raise more funds? The reason is that by staying the same it ignores the impact of inflation. If your earnings go up by the rate of inflation you will now be paying more tax, at your highest marginal tax rate, resulting in a higher effective tax rate for you the taxpayer. In a normal year SARS would adjust the tax brackets to account for inflation. By not doing so, the taxpayer will pay more tax, this is called bracket creep. It is probably worthwhile repeating the number – they will get in R16.3bn more taxes.
Two-pot retirement system
We recently wrote on the Two-pot retirement system that is due to be implemented in the middle of the current tax year. Part of the system that they are proposing is that there will be an initial withdrawal from retirement funds, this seed capital will be taken from the existing retirement savings. As the savings pot can be accessed once a year SARS (and the financial institutions) are expecting many individuals to do just that. With the amended legislation that will come into effect on 1 September 2024 accessing capital from your savings pot will be taxed at your marginal tax rate, and not as previously done according to your lump sum tables. You will be paying a lot more tax for accessing your funds prior to retirement. National Treasury in their document estimate that they will raise an additional R5bn in taxes during the first year as a result of taxpayers accessing their savings pot. I for one would prefer that my capital remains in my retirement account as opposed to a large portion going to the taxman so I will not be touching my savings pot, but I at the same time acknowledge that people may have different financial circumstances.
Other changes
As always sins tax in the form of excise duties on tobacco and alcohol have generally been increased at rates above inflation.
The tax incentive for individuals on solar panels that was enacted for the prior year has not been renewed. So, you had to have installed the solar panels in the tax year ended Feb 2024 to be able to claim 25% of the cost of the panels. This, according to National Treasury, has been replaced with an incentive for electric vehicle manufacturers, which doesn’t seem to benefit the poor consumer who is sitting in the dark, and unable to charge their vehicle.
Conclusion
The problem with the South African National Budget is that we always seem to miss the estimates on the negative side. We are always told that we are close to turning the corner, yet the following year we seem to be in a worse situation. We do however have one thing in our favour and that is our country is a mineral rich country. If Eskom and Transnet can be fixed and we can get our commodities exported it should be beneficial for GDP, tax revenues and employment. We would say that the government needs to get back to work, start doing things properly and just to fix what is broken.
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