South Africans should not expect large-scale tax relief in this year’s budget. It is likely that the focus will instead fall on social spending with, among others, the planned national pension fund and possibly a basic income subsidy as the core issues, notwithstanding the fact that room for tax relief for individuals does, in fact, exist.
This is according to Dawie Klopper, investment economist at PSG Konsult, who feels the foundations for this year’s budget were already laid in President Thabo Mbeki’s State of the Nation address.
“It is generally acknowledged that the state finances this year will deliver a surplus which will be reflected in the budget. The reason for the surplus is that on the income side more money has been collected than was expected, while on the spending side there has been an inability to spend money,” said Klopper.
On the spending side of the budget, South Africans can expect higher salaries for teachers, the police and nursing staff, as well as state doctors. In doing so, the loss of qualified professionals to other countries can be addressed to a certain extent, while attracting such people to the civil service.
However, far greater efforts will be needed to plan and budget for large infrastructure projects. In this respect, partnerships between the private sector and the state will become increasingly important. In order for this to succeed, the government must, however, be willing to reappoint those who were retrenched in the name of affirmative action in the past 10 years.
Klopper said that, despite the expected emphasis on welfare expenditure, there is enough room on the income side also to provide tax relief to companies and individuals.
In this respect, secondary taxation on companies can easily be done away with, since it represents a double taxation. Tax relief for companies ought to give rise to additional employment and should not stimulate imports unnecessarily. Concerns that companies will use this type of relief either to improve their profit margins or to raise dividend payments are unfounded.
There should, however, be guarded against too much economic stimulation, as it could lead to increased importation, which is already relatively high.
Saving can, however, be encouraged by further tax relief on interest and rental incomes, as well as by raising the tax-free percentage of the non-pension-carrying income that contributes to a retirement annuity or retirement fund to more than 15% of taxable income.
As a result of the relatively small deficit before borrowings, the budget will, from the supply side, not exert substantial pressure on the capital market, Klopper believes. — I-Net Bridge