As usual the budget has to walk the fine line between meeting the needs of South Africans and finding the money to do so. We take a look at some of the provisions for major spending such as health and education as well as the tax changes for individuals.
Healthcare spending
The budget announced efforts to improve the quality of, and access to, healthcare for South Africans:
- R360,6-billion will be spent on improving access to quality healthcare over the next three years. This includes the introduction of the National Health Insurance (NHI).
- To get the NHI off the ground, R1,2 billion will be spent on setting up family health teams made up of nurses, doctors and community health workers who will look after families in facilities and communities, and improve the quality of care in hospitals.
- In addition, R2,5-billion will be spent on increased HIV counselling and testing and extending the threshold for people to receive antiretroviral treatment.
- Maternal and child health services will be improved, with R1,4-billion given to training 400 nurses and midwives, improving health services at schools, and improving services at mother and child wards at district hospitals.
- R2,7-billion will be spent on improving health facilities and medical equipment available across the country.
- Various funding methods will be investigated. A possible increase in the VAT rate and a surcharge on individual taxable income will be considered and investigated this year as part of the options to assist with funding requirements to implement a national health insurance system.
What does this mean for the consumer?
There is a clear increase in commitment from the government to improve healthcare standards for all South Africans; particularly poorer sections of the population.
But while changes will be phased in over a number of years, what is clear — and was mentioned in last year’s budget too — is that the government currently does not have sufficient money to implement the entire NHI scheme. This means that it will eventually affect consumers through some form of tax.
The specifics are still being investigated, but some of the alternatives are an increase in VAT, removal of medical subsidy and a payroll tax.
However, as they are only being investigated, they will not implemented this year.
Moreover, since implementation of the NHI scheme will be phased in, consumers will not immediately benefit from the NHI scheme — although some will hopefully begin to experience improved servicing and benefits. If you currently have a medical aid scheme to provide for your medical needs you will need to keep on providing for your medical aid needs through the payment of a monthly premium.
Efforts to improve the quality of, and access to, education
As job creation is the government’s number one priority for 2011, spending on education is likely to be a focus point in the years to come. And, while R8,2-billion has been allocated to improve school facilities over the next three years, the government is adamant that it cannot do it alone and that business, parents, communities and learners will have to play their part.
Personal tax issues
When it comes to issues of personal tax, there is a reduced burden on lower income groups as indicated by:
- Increases to the minimum tax threshold to R59Â 750 for taxpayers below age 65; and R93Â 150 for taxpayers aged 65 years and older.
- A proposed tax threshold increase for taxpayers aged 75 and older.
- An increase in the annual tax-free interest income to R22Â 800 for individuals below 65 years; and R33Â 000 for individuals aged 65 years and older.
What does this mean for the consumer?
The changes to personal income tax are basically adjustments for inflation. Commentators often refer to this as “bracket creep’. What this means is that you pay a different tax rate on different parts of your income.
So on the first R150Â 000 you earn during the year you will pay 18% tax; on the next R85Â 000 (this is R150Â 001 to R235Â 000) you will pay a higher rate of 25% and so forth.
Bracket creep means that when you get your increase during the year you might be paying more tax on that extra bit of income. However if we earn more to combat the effect of inflation, it does not help if this extra income disappears due to tax. As such, the minister has adjusted the brackets to allow for inflation.
Similarly the tax threshold has been increased from R57Â 000 to R59Â 750 for taxpayers younger than 65. When it comes to the interest exemption, it means that you do not pay tax on the first amount of interest you earn.
So if you are younger than 65, you will only pay tax on interest if you receive more than R22Â 800 a year. If you are between 65 and 75 you will only pay tax if you receive more than R33Â 000 of interest a year.
Retirement funding
For individuals with pension and retirement funds the following tax incentives have been announced:
- The tax-free lump sum benefit upon retirement will increase from R300Â 000 to R315Â 000.
- Your employers’ contribution to your retirement fund will be treated as a taxable fringe benefit from March 2012, and you will be allowed to deduct up to 22,5% of taxable income for contributions to approved retirement funds, to a maximum of R200Â 000 a year.
- The one-third lump sum withdrawal limit applicable to pension and retirement annuity funds will also apply to provident funds.
What does this mean for the consumer? Currently if your employer makes contributions to your pension fund or retirement annuity fund on your behalf, you are not taxed on this. However, this will — from March 1 2012 — be seen as a fringe benefit which means you will be taxed.
Despite this, you will be allowed to deduct up to 22,5% of taxable income for contributions to pension, provident or retirement annuity funds.
The aim of retirement funding is to provide consumers with an income during retirement. Previously with provident funds you could take the entire amount at retirement, whereas with a pension fund and a retirement annuity you were only allowed to take one-third of the value at retirement and the rest you had to use to invest to provide you with a pension income during retirement.
However, the minister is proposing that we make all of this a lot simpler. The benefit of this is that the pension system will become less confusing to consumers.
The further benefit is that the money invested to provide an income during retirement will be used for this purpose and not as a lump sum. These and other changes suggested will not affect consumers immediately, but will be introduced over time.
If you’re in the business of buying or selling property
The transfer duty exemption threshold will be increased from R500 000 to R600 000.
What does this mean for the consumer? In short, you will pay less transfer duty if you buy a property valued greater than R600 000. If you buy a property valued at R1 million you will pay transfer duty on only R400 000 of the value of the property.
Sin taxes:
Excise duties on alcohol will increase between 4,5% and 10,3%, and taxes on tobacco products will increase between 6% and 10,2%. This means you’ll pay 80 cents more for a packet of 20 cigarettes.
‘Travel tax
The general fuel levy will increase by 10 cents a litre on both petrol and diesel on April 6 2011; the Road Accident Fund levy will increase by eight cents to 80 cents a litre; and there will be an increase in air passenger departure tax on international flights from October 1 2011.
For electricity users:
- There is an increase in the levy applied to electricity generated from non-renewable and nuclear energy sources by 0,5c/kWh to 2,5c/kWh from April 1 2011. Some of this revenue will be set aside to fund the rehabilitation of roads damaged as a result of the haulage of coal for electricity generation.
- The increase should, however, have no impact on electricity tariffs, because it has already been taken into account in the National Energy Regulator tariff structure.
What this means for the consumer?
While it’s good news that we are not going to pay more income tax during the year, we are going to pay more tax on some of the items that we consume regularly. This means that generally some things will become more expensive. We have seen over the last number of years that there has been an increase on taxes on alcohol and tobacco products as well as on fuel.
As such, you need to budget carefully in the coming year as there are various things that could increase your expenses — and in turn the money you have available every month. Increases in “sin taxes” mean that you would have to look at how much you spend every month on tobacco, alcohol and fuel and increase the allocation to these expenses or alternatively reduce how much you use.
The good thing is that even though there is an increase in the levy for non-renewable energy this will not affect your pocket since what we pay as consumers has already been taken into account when the National Energy Regulatory decided on the tariffs.
Karin Muller is head of middle market solutions for Sanlam Personal Finance
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