SA’s overburdened taxpayers hit again: how the budget plays out in your personal finances

Helping to unpick the details of the National Budget and how changes affect your investments and tax bill is Dawn Ridler, of Kerenga Wealth Ecology. She tells BizNews that although there’s a huge hole in government funds, the government needs to be careful of killing the golden goose – the small, shrinking pool of personal income taxpayers. There’s a 2% real increase in tax, through bracket creep, and a wealth tax in the form of a clamp down on taxpayers ‘with complicated tax affairs’. The ending of the 12J scheme is also a disappointment for higher income earners, who have used the incentive to cut their tax bills while at the same time helping start-ups and, in so doing, generate business growth. – Jackie Cameron

Dawn Ridler’s key thoughts on the budget speech:

I think he was caught between a rock and a hard place. He tried to make it very obvious that there were no surprises, no great big tax increases and that kind of thing. Basically, there is a huge hole in the government funding. Tax receipts are down and and spending is not. But that deficit is going to be made up by issuing debt – which is what every other country in the world is doing. So he’s in good company when it comes to that kind of thing.

There are increases, if you look at it in real terms. What I mean by real terms is that when you take inflation into consideration. Last year’s inflation was 3.2%. Effectively, the tax increase that you can see, has come through as 5%. So there’s a 2% real increase in tax for individuals specifically. It’s a bracket creep – a stealth tax. He glossed over that very quickly.

On the end of the 12J investment scheme:

It really is a huge disappointment. It was very good for startup companies. It was a very easy way for startups to get money and for taxpayers – at the same time – to get a tax break. I had a gut feeling that this was going to happen. I have clients that are in 12J and I find them a really good idea. I think it’s a huge disappointment and it’s going to be a huge knock on a lot of companies that provide money to those startups.

On whether these announcements will encourage emigration:

I think immigration has been happening anyway. More often than not, not really for tax reasons – but for reasons that they just don’t see a future (maybe for children or that kind of thing). They just feel that the country is slowly crumbling. There are some changes around financial immigration and those kind of things. But I think people are mostly quietly emigrating. They’re taking money out over a period of years. 

Declaring that you’ve financially immigrated – which is not really a thing anymore – that sort of ended in 2008. I think that’s happening anyway and it’s a huge shame. There was very little in the budget to increase foreign direct investment. A lot of that growth would come from people who come into the country. And obviously, the concern around foreign direct investment is exacerbated by the acquisition without compensation that keeps rearing its head.

On whether the budget speech will have any effect on equities:

I don’t think the budget will have any impact on it. There weren’t any sort of big shocks. I think the rand is fairly well linked to what is happening with the weakening of the dollar. The rand is strong because of a weak dollar, not because we’re brilliant at this point in time – or that we’ve come out of the pandemic superbly or anything like that. It’s purely to do with the weakening dollar.

If you look at Wall Street, for example, and the JSE – they track each other almost exactly. Look, some of the positives are, of course, the price of commodities, which because the dollar has been weakening, has gone up (because all commodities are actually quoted in dollars). That’s the reason why you’re seeing a lot of this uplift, not so much to do with a huge demand increase. Economies throughout the world are still very subdued and expect to be subdued for at least the end of this year.

But with a weak dollar – which has been created by these stimuluses and printing of money in the US. There are a couple of unexpected things that came out there. Tito did start to mention an increase expenditure in agricultural education which, I think, is long overdue.

On social grants:

One other area that really continues to be of grave concern is the chunk of the budget that social grants now take up. It’s now sitting at over R385 billion. That is just unsustainable. That means every taxpayer is paying for two grant recipients.

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