Budget 2023
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Only marginal increase in grants expected

Cape Town - Given the reduction in inflation due to the sharp decline in petrol prices, social grants may be increased by 4% rather than an expected 6% or 7% by recipients in the upcoming National Budget, according to Rowan Burger, executive: large corporate segment at Momentum.

"Expect several possible levers applied by Finance Minister Nhlanhla Nene in his National Budget to either increase review or cut benefits to fund the shortfall due to the tight fiscal position SA is in," said Burger.
 
"There seems to be speculation that a new higher end tax bracket may be introduced. At best, the existing brackets will not be moved to the extent of salary inflation, meaning that average tax rates for people in the same position as last year after an inflation increase will be paying a higher tax rate."

There is speculation there may be an increase in VAT. However, this would be more penal on lower earners, unless there is an extension of zero rated items.

Furthermore, holdings in listed shares by some state owned enterprises (SOEs) may be reduced - examples could be Vodacom [JSE:VOD], Kumba [JSE:KIO] and Sasol [JSE:SOL], in his view.

Tax free savings accounts
 
"We would like to see tax free lump sums on retirement and withdrawal increased annually with inflation. Given a large jump last year to catch up, it seems unlikely any change will apply again this year," said Burger.
 
The higher tax rates will further highlight the benefit of saving in the new tax free savings accounts and in retirement funds as the tax resulting of doing it on a taxed and discretionary basis will become stark, he pointed out.

READ: Analysing the new tax free savings account: How much will you actually save?

Retirement space

Burger said in his personal view, the state old age grant (SOAG) age of 60 allows many employers to set retirement ages (particularly for blue collar workers) at 60.

"Given levels of savings and longevity, it is tough to achieve a decent pension at this point and internationally most countries are signalling retirement ages should be moving out," explained Burger.
 
"My proposal would be for the finance minister to announce that the SOAG age increases to 65, but recipients can claim an early retirement SOAG from 60 without an early retirement reduction."

READ: High road, low road scenario for retirement

The reason for his view is because "this should not change much in the lives of the recipients as existing benefits are unchanged".

It will also send a message in terms of a longer required working life and gives Treasury a more flexible policy lever to implement an early retirement reduction factor, rather than withdraw the benefit in its entirety.
 
"While this may create other liabilities to the fiscus - disability grants are now potentially payable for five years longer - in our current environment, with high levels of youth unemployment, a younger retirement age forces an element of workforce churn that may be intended, but counterbalanced by a potential early loss of skills," said Burger.

ALSO READ: Using tax free savings accounts

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