Budget 2023
Share

The ‘hurt when you spend’ budget

As government targets consumption tax, the burden will fall on to the emerging middle class.

To raise R36 billion in tax revenue to cover the costs of free higher education, close the shortfall in tax revenue and meet debt repayments, government has targeted consumer spending rather than further raising personal income taxes.

In explaining its decision to raise value-added tax (VAT) by 1 percentage point to 15%, National Treasury indicated it had run out of options on personal income tax, which had already been increased in the previous two budgets.

National Treasury argued that poorer households would not be negatively impacted as they benefit from 19 zero-rated basic food items and will see an above-inflation increase in social grants.

Furthermore, 85% of VAT revenue comes from the wealthiest 30% of households.

In his address to journalists, Finance Minister Malusi Gigaba was at pains to point out that while the budget has increased tax revenue, it is also giving back benefits such as free higher education and increased social grants.

This argument will not fly with emerging middle class South Africans who will bear the brunt of the R36 billion in higher taxes, while not directly benefiting from state funding.

Families who earn above R350 000 a year will not qualify for free education or social grants.

It is this middle class who will be paying the increased excise duty on luxury items such as cosmetics and electronics.

They will experience higher prices for healthy choices such as low-GI bread, which is will no longer be deemed zero-rated for VAT.

They will be paying the increase in excise duty on motor vehicles from 25% to 30% and it will cost them an extra 52c per litre to fill up with petrol.

The middle class will carry the bulk of the R1.9 billion expected to be raised through the sugar tax, which has been repackaged as a “health promotion” levy.

The current tax relief for basic medical cover will be reduced over the next three years through below-inflation increases in medical tax credits which will help government to fund the roll-out of national health insurance, also aimed at benefiting poorer households.

Individuals earning R350 000 or more, who make up 16% of South Africa’s personal income taxpayers, but account for 81% of the total tax income, will receive little relief from fiscal drag as government expects to raise R6.8 billion by not adjusting the tax tables for inflation.

This means their inflation-linked salary increases will see them paying more tax.

As Eugene du Plessis, director and leader of tax at Grant Thornton, notes: “The limited fiscal drag relief afforded to individual taxpayers was expected. In essence, it’s a disguised form of additional taxes that at face value is more palatable than an outright increase in the marginal tax rates. Individual taxpayers will, however, continue to carry an increasing burden of the overall tax liability.”

While economists have applauded the budget in achieving a balancing act between reducing the budget deficit while still delivering on basic social development, ultimately it is the middle class, already struggling with so-called black tax and the burden of unemployed family, who will be asked to further cross-subsidise governments plans.

The only hope to reduce the financial pressure on households is that government starts to take serious measures to cut back on unnecessary and wasteful expenditure. The budget must prevent a further credit rating downgrade and maintain a stable currency. The economy must return to a strong growth rate that can create jobs, lift people from poverty and generate improved tax collection, so that further tax increases are not required.

It is unlikely that the average household will survive any further budget pressure. After this budget, government may well be out of options.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.87
+0.3%
Rand - Pound
23.84
+0.3%
Rand - Euro
20.38
+0.3%
Rand - Aus dollar
12.32
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders