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29 Mar 2010 12:52
While the South African Reserve Bank has received commendation for cutting the interest rate by 50 basis points last week, take a moment to think about the savers in South Africa, especially pensioners. Since the rate cutting cycle started 18 months ago, their income from cash has actually halved.
Take this rate cut as an example.
In February Finance Minister Pravin Gordhan announced that people over the age of 65 could now earn up to R32 000 tax-free interest income a year—this was an increase from R30 000.
Before the budget announcement a pensioner with R540 000 in an account earning 6% interest would have received R32 400 of interest, of which R2 000 would be taxed. Post-budget, the increased tax-free portion now meant that they had an additional R600 (assuming a tax rate of 30%) of income. If their interest rate now falls to 5,5%, they will receive R29 700 in interest income. The net result is that the pensioner is receiving R2 700 less a year—the R600 tax benefit now looks like sick joke.
Interest rates are now at the lowest point in three decades, having halved since the rate cuts started. That means a saver who was earning R60 000 on a R500 000 deposit now has to have R1-million to receive the same income.
While debt relief is important, as is the need to stimulate the economy, it is very sad that this comes at the expense of savers, of whom we have very few in this country. Moreover, pensioners are among the most vulnerable in our society. Few people retire with sufficient income to support their needs yet they face high medical costs and now even higher electricity costs while their income has been severely eroded due to an economic crisis caused by excessive debt. The savers are bailing out the spenders.
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