How the budget affects consumers

2013-02-28 13:01 - *Karin Muller
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THE National Budget Speech is a much anticipated event every year and while many of us are keen to hear how much more we will pay for petrol and beer, there are other critical components that are well worth considering. After all, our country’s budget is no different to our own budgets with a focus on finding a balance between income and expenses.

But, how will the Budget affect our pockets in the short term?

Impact on different taxes

The combined impact of the changes to the different tax systems will affect how much you receive of your salary every month (income tax and deductions), how much you pay for certain things (VAT and sin taxes), as well as how much you need to pay when you sell certain assets (Capital Gains Tax).

Income tax

Over the last number of years we have all started to expect personal tax relief that at least partially compensated for the effect of inflation (also known as “bracket creep”). It was widely speculated that the Minister might increase personal income tax during this Budget, but it was pleasing to see that the Minister did not do so.

There was mention of personal income tax relief of R7bn. How much of this will reach your pocket, depends on how much you earn.  For example, someone earning taxable income of R300 000 will have paid R66 300 in taxes, based on the old tables (before rebates and deductions) - and will now be paying R65 471 - a saving of R830.

For taxpayers below the age of 65 the primary rebate has increased from R11 440 to R12 080. This is the amount that you can deduct from the income tax you pay every year. Taking these rebates into account, the person will now pay income tax of R53 391, compared to the R54 860 in the last tax year. This translates to a total saving of R1 469.

For someone earning R180 000 this saving amounts to R1 032 per year.

Sin taxes

As has been the pattern over the last number of years, there has also been an increase on most of the sin taxes. The duties on tobacco products will increase between 5.7% and 10%.

Fuel levy

There will be an overall increase in the fuel levies, including the Road Accident Fund levy, from April 2013. For every litre of petrol you will pay a net amount of 23c more or if you fill up a 60 litre tank it will cost you an additional R13.80.

Medical tax credits

The medical tax credits will be increased from R230 to R242 for the first two beneficiaries and from R154 to R162 for every beneficiary thereafter. This means that for a family of four your medical credits will increase from R768 to R808 resulting in a monthly saving of R40.

Interest income

From 1 March the tax-free interest income will increase from R33 000 to R34 500 if you are 65 years and older; and from R22 800 to R23 800 for individuals under 65 years. This means that you will not pay tax on the first R23 800 interest you earn if you are younger than 65.

How will the 2013 budget affect us over the longer term?

The Budget is not all about tax. On the long-term side of the Budget we can look more at the benefits we, as citizens, receive from the Government.

Encouraging household savings

South Africans have poor savings habits. We consume all our money and do not save enough for tomorrow. Not only do South Africans need to save more to provide for their own futures and their families, but the economy also requires South Africans to save.

With the high debt levels and low savings levels we, as a nation, are actually consuming today what we have not yet earned tomorrow.

In last year’s Budget Speech the Minister indicated that there would be focus on incentives to help South Africans save. These products will be introduced from April 2015. As an investor in one of these products you will not pay tax on the income you earn in the product - whether it is interest, capital gains or dividends; and you will not be taxed when you withdraw from the product.

According to the current proposal you will be allowed to save up to R30 000 per year (with a lifetime limit of R500 000) into these products and not pay any tax on the return you earn, thereby enabling many South Africans to make their savings work harder for them. 

Retirement reform 

The comments made about retirement reform will not affect us in the immediate future, but it is important that we understand this, since after its implementation (which, according to the latest draft proposals that were published for public comment at the same time as the Budget speech, will only become effective on or after 2015), it will affect most of our lives while saving up for retirement as well as the retirement income that we will eventually receive. 

Very few South Africans are able to retire with sufficient retirement income. There are many reasons for this, including insufficient contributions and withdrawing your retirement savings before retirement. In the 2011 Sanlam Benchmark Survey 20% of people indicated that they withdraw their retirement savings when they left an employer. The concerning aspects is that 72% of people used it to settle debt and 29% used it to provide for living expenses. 

One of the changes the Minister mentioned is simplifying and harmonising the retirement systems. For consumers part of this simplification would mean that we will no longer have to understand all the complexities and differences between the pension, provident and retirement annuity funds. 

As indicated in last year’s Budget the proposal is that you will be allowed to deduct up to 27.5% of your income if you contribute this towards your retirement irrespective of the type of retirement fund into which you invest or whether the contributions are made by you or your employer. These deductions will however be limited to a maximum of R350 000 per year. 

This means that if you earn more than R1.27m you will not be able to get immediate tax relief if you deduct a full 27.5% contribution, but this will be rolled-over and allowed against your lump sum or later annuity income. 

There are further proposals around retirement reform to enable individuals to make provision for adequate income in retirement. However these proposals still need to be finalised. One of the major aspects raised in the Budget Speech about retirement reform is the preservation issue, but any changes in this regard will be widely consulted prior to finalisation and any changes will be phased in and will take into account that people have already saved for their retirement income in a specific manner. 

Trusts 

National Treasury previously already signalled an intention to start looking at the taxation of trusts. It is acknowledged that there is a legitimate use for trusts to provide for minor children and people with disabilities, but various proposals are being considered to prevent trusts from being utilised to avoid tax. 

Disability and income protection 

You can provide for yourself in the event of disability by either obtaining insurance for replacing your income or providing for a lump sum. 

Currently different disability and income protection products are treated differently for tax purposes. It is proposed that all non-retirement fund disability and income protection policies will be treated the same, i.e. contributions will not be tax deductible and the pay-outs will not be taxed. 

*Karin Muller is head of Growth Market Solutions at Sanlam Personal Finance.

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