This year’s national budget is expected to introduce further initiatives that promote personal savings and discourage overspending after several years of conspicuous consumption by South African consumers.
Ian McDonald, national manager of financial planning at MortgageSA, says the Treasury will almost certainly focus on putting brakes on consumer spending, so people should not be surprised if this year’s budget does not include a reduction in personal taxes as it did last year.
“I think the focus this year will be a strong message of ‘save, don’t spend’. And hopefully it will address further incentives for retirement savings in particular.
“One way of achieving this would be to raise the tax-deductible amount an individual can claim on contributions to retirement annuities [RAs].”
Currently individuals can claim a tax break of up to 15 % for their RA contributions (but limited to the actual amount if it is less than 15%). This is for people who do not belong to a retirement fund.
“A second concession is to remove the taxes levied on retirement funds under management of financial institutions (Tax on Retirement Funds Act 38 of 1996) which is currently levied at 9% on interest (not capital growth).
“It was lowered last year from 18%; however, there have been calls year in and year out before the budget speeches to do away with this tax as it effectively taxes the same money twice — that is, the money in the funds are taxed at 9% and then the annuitant is taxed on the income he/she draws from the funds in his/her retirement years.”
McDonald notes that curtailing consumer spending is an important priority for the government this year because greater disposable income further drives consumer spending and credit demand for luxury imported items.
“The knock-on effect is to further widen the current-account deficit to fund these imports, something which [Reserve Bank Governor] Tito Mboweni is determined to bring under control as evidenced by recent rate hikes.”
McDonald says that people should focus on investment in assets that appreciate in value such as property and shares to create wealth, avoiding “status” purchases that typically quickly drop in worth.