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Gordhan is nudging us towards saving for the long term

Personal Finance

Although the impact of this year’s budget will continue to be debated, a few key road signs indicate the landscape that Finance Minister Pravin Gordhan is trying to shape for South Africans.

When predictions were made about the taxes that government might target to raise funds to cover its revenue shortfall, most people kept their fingers crossed that personal income tax would not be among them. It seems that fortune favoured most taxpayers, except those who earn more than R1.5 million a year, whose marginal tax rate has been increased to 45 percent.

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Gordhan can be forgiven, if not hailed, for this move. In a country where most of the population is highly indebted and can ill afford to pay much more for anything, the wealthy probably have some room to manoeuvre. And he went further, hammering them with an increase in dividend withholding tax from 15 to 20 percent.

While the rest of the taxpaying population will probably feel a slight pinch, because there is limited relief for bracket creep, they will be hard-pressed to find much pain in this year’s budget.

The budget reflects the fact that Gordhan is mindful of the high level of indebtedness facing most consumers.

We will do well to try to understand what National Treasury is trying to achieve, and all the signs indicate that the objective is to influence financial behaviour.

Consider that the limit on annual contributions to tax-free savings accounts has been increased by 10 percent to R33 000 a tax year and the transfer duty exemption has been increased from R750 000 to R900 000, which should help and encourage first-time home-buyers.

A key message in the budget speech was the need to transform the economy. Gordhan emphasised that a sustainable way of growing the economy is to ensure that there are qualified and trained South Africans.

At a consumer level, he applied tax increases where we have control over our spending. It’s the usual culprits: an increase in the fuel levy of 30 cents a litre; an increase of nine cents a litre in the Road Accident Fund levy; and excise duties for alcohol and tobacco will go up by between six and 10 percent. The sugar tax will be implemented later this year, and Parliament will consider implementing a carbon tax. These taxes affect consumers across the board, although their impact can be mitigated if we modify our behaviour – for example, by cutting down on sweetened drinks, smoking and alcohol, or reducing the use of private motor vehicles by carpooling or using public transport.

Although it may be tempting to argue that the limited fiscal-drag relief, combined with the inflation-only increase in medical tax credits, will leave consumers worse-off, we should consider that most people receive below-inflation salary increases. Furthermore, if we are honest, few of us channel the extra income we receive from bracket-creep-relief into our savings. So there should be some understanding for Treasury’s decision to restrict a benefit that enables us to spend more, in favour of helping government to plug a few more revenue gaps.

The message to those of us on our way to retirement is clear: provision for retirement is one of the most sorely lacking areas of saving in South Africa, and we continue to ignore it at our peril as we purchase cellphones, data contracts and pay-TV subscriptions in lieu of directing more money into discretionary savings and retirement funds.

Ultimately, we need to understand that the budget and tax dispensation can take us only so far. The rest is up to us. I believe that wealth is ultimately about what we do with what we have. It is the accumulation of savings. In my book, this year’s budget tries to move us towards that realisation.

• Trurman Zuma is the chief executive of savings at Sanlam.

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