Last week, the Minister of Finance tabled the 2021 Budget, which, according to many experts was more optimistic than expected.
“It is important to understand the context,” says Sandy McGregor, portfolio manager at Allan Gray. “South Africa is benefiting from a commodity price boom. Compared to the predictions in the October 2020 Medium-Term Budget Statement, tax collections are now expected to be higher by R100bn in 2020/21 and R86bn in 2021/22. Higher revenues have provided space for the Treasury to cancel a proposed R40bn tax increase in 2021/22 and provide some tax relief for companies. Most important is the government’s decision to persist with its fiscal stabilisation programme, including the freeze on public service wages,” he notes.
“This Budget was most certainly taxpayer-friendly, with tax increases being kept to a minimum for both individuals and businesses,” says Carla Rossouw, tax lead at Allan Gray. “There was also an acknowledgment that COVID‐19 led to many business closures as well as job losses.”
According to André Wentzel, Solutions Manager for Sanlam Retail Affluent -Recurring Savings, the granting of above-inflation personal tax relief of R2.2 billion is particularly positive. “Many were expecting the worst when it came to tax increases, given that we currently have the largest tax shortfall on record. We applaud the government’s considered approach, which should help to reduce the tax burden on lower and middle-income households. If you are earning above the new tax-free threshold of R87 300, this means you’ll have at least R756 more in your pocket during the next tax year.”
Wentzel says that the tax relief gives South Africans a chance to take a deep breath and reprioritise their finances. “Minister Mboweni stressed that the biggest contribution the government can make to support economic recovery is getting its fiscal house in order. This can be extended to all of us. Now is the time to re-examine money matters to feel in control and cut expenditure where possible.”
Rossouw comments that despite rumours ahead of the Budget Speech, there was no mention of a wealth tax. This despite the SARS initiative to crackdown on “individuals with wealth and complex financial arrangements”.(Read: SARS closing loopholes for high-net-worth individuals) There was also no increase in capital gains tax and value-added tax (VAT) and dividend tax remain unchanged. “Instead, we saw a continued focus on the tax collection improvements, enforcement and administration at the South African Revenue Service (SARS) with the latter being allocated an additional R3 billion.”
Other take-outs of the budget speech, according to Wentzel:
- Saving for Retirement: Mboweni also confirmed changes concerning provident funds and announced proposed amendments to Regulation 28 – part of the Pension Funds Act governing the types of investments retirement savers can save in – to encourage investment in infrastructure. This may hold potential investment opportunities for those saving for retirement.
- Awareness of Sin Tax and Fuel Levies: Disposable income gains from personal tax relief may be jeopardised by significant spending on sin-tax items and fuel levies.
- The power of a plan: The Minister repeatedly emphasised that this is ‘not an austerity budget’. The message was clear – we need to invest now to achieve growth down the line. Similarly, it’s important to create a road map for one’s personal finances based on long-term goals. It’s about budgeting properly to secure your financial future. It will be a long road, and you may have to make sacrifices along the way, so celebrate each small ‘win’ that takes you closer to achieving your goals. Live with confidence, have a clear picture of what you want the future to look like and take deliberate steps towards this.
Wentzel concludes, “To quote the Minister’s iconic words… ‘Continuing on our path was a difficult decision. But if you want an easy decision, go swimming.’ Right now, we urge South Africans to stick to their savings and investing goals when possible. In these tough times, now’s the moment to be hopeful, take stock, and reprioritise your finances.”
Let’s be positive and trust that the light at the end of the tunnel is not a train heading this way.
Click here to download Old Mutual’s Budget Tax guide 2021
Click here to download #RSA Budget 2021, a joint publication between National Treasury and South African Revenue Service
