Taxpayers who eagerly tuned in to Minister of Finance Enoch Gondongwana’s Budget Speech yesterday, praying for tax relief or rebates, were greatly disappointed.
Introducing the topic of revenue trends and tax proposals, the minister said the weak performance of South Africa’s economy has resulted in a sharp deterioration in tax revenue collection for 2023/24.
In the 2023/24 fiscal year, tax revenue stands at R1.73 trillion, which is R56.1 billion less than what was expected in the 2023 Budget.
The minister said the 2024 Budget contained tax measures to raise R15bn in 2024/25 “to alleviate immediate fiscal pressure and support faster debt stabilisation”.
Noting that most revenue came from personal income tax, he said the tax brackets, rebates, and medical tax credits would not be adjusted for inflation, dashing taxpayers’ hopes of catching a (tax) break.
Taxpayers are going to have to box very smartly
Pieter Albertyn, the head of product solutions for Retail Savings at Momentum, said in a low-growth economy, it was inevitable that the taxpayer would bear some of the burden.
Albertyn was part of a team of financial experts from Momentum who shared their comments on the 2024 Budget during an online panel discussion held shortly after Gondongwana delivered his Budget speech on Wednesday.
“The number of government initiatives that require significant funding is quite staggering… We heard that the tax brackets were not adjusted, so taxpayers will be worse off in real terms,” he said.
Albertyn added that, in that sense, the minister had not shown much empathy towards taxpayers who were already under a lot of financial strain.
“And it was interesting to hear how the minister balances all of these things, but I think the key takeaway for me is that taxpayers will need to box very smartly when it comes to their personal financial decisions,” he said.
Even drowning your sorrows has become too expensive
Jurgen Eckmann, franchise principal and financial adviser at Momentum Consult, said he was listening with bated breath, hoping to find any positive aspects that could offer relief to taxpayers.
“And, unfortunately, my list is a bit thin… And then when you couple that with increases in our sin taxes, I don’t think any of us are going to be better off. I think we are going to be worse off. Can’t smoke, can’t drink, can’t do anything, unfortunately.”
A sin tax is an excise tax on specific goods and services due to their ability, or perception, to be harmful or costly to society. The tax comes at the time of purchase.
The 2024 Budget proposes above-inflation increases of between 6.7 and 7.2% for 2024/25 for alcohol products excise duties. This means:
- a can of beer increases by 14 cents;
- a can of a cider and alcoholic fruit beverage goes up by 14 cents;
- a bottle of wine will cost an extra 28 cents;
- a bottle of fortified wine will cost an extra 47 cents;
- a bottle of sparkling wine will cost an extra 89 cents; and
- a bottle of spirits, including whisky, gin or vodka, increases by R5.53.
Treasury also proposed to increase tobacco excise duties by 4.7% for cigarettes and cigarette tobacco, and by 8.2% for pipe tobacco and cigars. This translates to:
- an increase of R9.51 cents for cigars;
- an increase of 97 cents for a pack of cigarettes; and
- an extra 57 cents for pipe tobacco.
Vapers will also no longer be spared. Gondongwana said Treasury was tabling an increase in the excise duty on electronic nicotine and non-nicotine delivery systems, commonly known as vapes, to R3.04 per millilitre.
Fuel – is the tank half full or half empty?
The minister said the Treasury was mindful of the already high cost of living and the impact fuel prices have on food and transport costs.
“In this regard, we are proposing no increases to the general fuel levy for 2024/25. This will result in tax relief of around R4 billion. This is money back in the pockets of consumers,” he said.
Eckmann said this will provide a bit of tax relief. But Bertie Nel, head of financial planning and advice at Momentum, said he failed to see how this would benefit consumers directly.
“We are still paying that, we’re not getting (money) back. We are not paying more, fortunately,” said Nel.
Two pots: retirement fund member education is essential
Providing an update on the progress of the two-pot retirement system, the minister said that from 1 September, the first cash withdrawals could be made from the savings pot.
In a nutshell, the system entails dividing up contributions to retirement funds, with one-third going into a “savings component” and two-thirds going into a “retirement component”.
“The two-pot system ensures that we strike a balance between preserving contributions to safeguard a better retirement for members, while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress,” said Gondongwana.
Jessica Pillay, an independent financial adviser at Momentum Financial Planning, expressed the concern that the process was moving too fast.
“People (in the audience at the Good Hope Chamber, Parliament) were praising it and welcoming it (two-pot retirement system), but I think a lot of the people need to be educated on exactly what the implications are going to be for them on an individual basis.”
Pillay said that although fund members may experience some financial relief now, it could have implications for their retirement savings in the long run.
“Consider that you are currently working, and you can save towards your retirement. And then when you do retire, and you have a shortfall, what do you do then?”
She said, for her, the focus should rather be on educating the country before individuals decide to withdraw or tap into their retirement savings.
“And again, people need to understand there’s going to be withdrawal tax tables. So, there’s going to be a lot of implications on the deck that the country needs to know about before they venture into this,” said Pillay.
Extra money for education, but will it make a difference?
Treasury’s spending plans for the year ahead include an additional allocation of R25.7bn to the education sector for the carry-through costs of the wage increase over the medium term.
The minister said they were also able to protect the budgets of critical programmes such as the school nutrition programme. The programme provides food to learners in almost 20 000 schools.
In addition, R1.6bn will be allocated to the early childhood development grant, rising to R2bn over the medium term.
Nel said the extra spending on the education system is the one positive that he picked up on in the Budget.
“The proof is in the pudding. How’s that efficiently going to be applied and how are we going to see the knock-on for consumers and for our children in that space?”
Social grants – money’s too tight to mention
The minister’s announcement that permanent social grants would be increased “to keep pace with inflation and increase access” initially received cheers, but the mood among the audience members quickly shifted when it became clear that the increases would be minimal.
These include:
- An increase of R100 to the old age, war veterans, disability, and care dependency grants. This amount will be divided into R90 effective from April, and R10 effective October.
- A R50 increase to the foster care grant.
- A R20 increase to the child support grant.
Gondongwana said Treasury was sensitive to the increase in the cost of living for the nearly 19 million South Africans who rely on these grants to make ends meet.
“In this regard, we have done as much as the fiscal envelope allows,” he said.
Commenting on the minimal increase and the absence of any real tax relief, Nel said that, overall, there was a heavy burden on people struggling to keep afloat with all the challenges the country was facing.
“So, the individual won’t benefit… and we all anticipated this. We heard rumours about taxes going up… (but) it is an election year. Everybody should be very conservative, and it was a conservative Budget,” Nel said.
