In South Africa we are used to surprises, whether it is the Zondo commission findings or ESKOM’s Stage 6 load shedding. What we are not used to is pleasant Budget surprises from the Minister of Finance.
Most analyst budget expectations was the following:
- Increase in VAT rate
- Change in capital gains inclusion rate
- No relief in personal income tax tables
Not one of the predictions came true and the changes that were made was the following:
- Tax free savings yearly contributions was increased to R 36 000
- Foreign employment income exemption increased to R 1.25 million from R 1 million
- Sin Taxes increased – Alcohol 4.4% and Tobacco 7.5%
- New Tax on Heated tobacco products
- Fuel Levy – Total increase of 25c/l
- Plastic bag levy – Increased to 25cents
Interesting changes to the Emigration and Exchange controls:
- The modernisation of the exchange control regime to suit a more global citizenship approach.
- Under the new system emigrants and residents will be treated the same. The concept of emigration as recognised by the SARB will effectively be phased out.
- Additional restrictions currently placed on emigrants, such as the requirement to only operate blocked accounts will also be repealed.
The above mentioned changes will be phased in from 1 March 2021.
But to balance the budget there were 2 promises made:
- Reducing expenditure through restricting Government Salary Wages. The proposal is that wages be cut by R 160 billion over next 3 years.
- More efficiency from SARS. (Which is good news for the country, but bad news for some tax payers)
We are borderline junk status and that reality is already priced in the markets.
This budget hopefully give as more time to fix the economy and keep the rating agencies happy, for now. Economic growth remains our countries biggest challenge.
More importantly, now that there is more stability in the form of leadership and inflation under control, the reserve bank can start lowering interest rates. Lower interest rates will stimulate our economy.
First of all this will give consumers relieve on their debt and they will have more money to spend in the economy.
Secondly it will force Companies to invest the money in their business to get yield on their cash, because you don’t get the desired returns in cash investments.
We are moving in the right direction, although it is slower than what most of us want it to be. Most importantly is that we must reduce expenditure, otherwise next years budget can be a bad surprise for tax payers.
As Toone Pickens said: “A plan without actions is not a plan. It’s a speech.“
PJ Botha CA(SA), CFP ®