High-income earners will pay substantially more tax in the 2017/18 tax year with the introduction in the Budget of a new tax bracket for people who earn over R1.5 million a year.

These individuals, whom National Treasury estimates to number just over 103 000, or about 1.4 percent of registered taxpayers, will be subject to a marginal rate of 45 percent, compared with the current top rate of 41 percent.

Income tax rates for people who earn less than R1.5 million a year will be affected only moderately by the Budget, and it is essentially a result of fiscal drag – the tax brackets lag the inflation rate.

The income levels on each bracket have been increased by one percent, although the rates associated with each bracket remain the same. This means that taxpayers in these brackets will pay slightly less tax if their income has remained the same, but will pay slightly more as a portion of their income if their income has increased by, for example, the inflation rate of between six and seven percent.

Also increasing by only one percent, instead of keeping pace with inflation, are the primary, secondary and tertiary rebates, increased to R13 635 (from R13 500), R7 479 (from R7 407) and R2 493 (from R2 466) respectively. This means that even pensioners, to whom the secondary (for people aged 65 and over) and tertiary (for those aged 75 and over) rebates apply, will pay more in real terms if their pensions are inflation-linked.

The tax thresholds, below which individuals do not pay income tax, will increase by one percent to R75 750 (from R75 000) for taxpayers under 65, R117 300 (from R116 150) for taxpayers aged between 65 and 75, and R131 150 (from R129 850) for taxpayers aged 75 and over.

In a press conference at Parliament before his Budget speech, Finance Minister Pravin Gordhan said government, with its focus on transformation and inclusive growth, believes in a progressive tax system (the rich are taxed more heavily than the poor), which is crucial to a more equitable distribution of wealth.

Without this transfer of resources, admittedly off a low base, he said, there would not be stability. There are risks involved in taxing high earners more heavily, such as these individuals finding ways to avoid paying tax, but this is a challenge faced by many countries, not just South Africa.