South African’s are expecting to part with their money less over the course of the next year, with the country’s economy set to remain bleak as a result of a widening budget deficit. The group most hard-hit will likely be those within the middle income bracket, with tax increases likely to curb spending for everyday taxpayers. Finance Minister, Nhlanhla Nene’s 2015 budget speech has received mixed reviews from analysts, some of whom have slated his announcement of a tax increase, with others recognising the minister’s attempts to reach some form of balance.
“With the rise in the fuel levy and the change in the tax rates, I think it’s not such a happy budget for the man in the street,” suggested Prof. Jennifer Roeleveld,from the Department of Finance and Tax at UCT.
Despite a difficult economic forecast for 2015, she said there was some positivity in the fact that Nene had sought to cap spending across all spheres of government, in a bid to reduce “unnecessary and wasteful” expenditure. She said this would serve as good news for South Africans, already critical of high levels of government wastage of taxpayer monies.
“We’ve got to stop wasting and we’ve got to be more efficient…The tax budget isn’t sort of the big driver for running this country really; we actually need to concentrate on what we need to do for growth and to encourage it as much as possible,” she stated.
Despite the positivity, she stressed that there was little in the current budget that would allow everyday middle income South Africans to prepare for their retirement.
“You literally just can’t save if you’re earning too little,” she added.
The annual budget speech has been overshadowed by an alarming state low growth in the economy, as well as a continue energy crisis with the country’s sole energy provider, Eskom. Despite these issues, financial advisor, Khanyi Nzukuma said Nene had done well to reach some form of balance in his budget.
“What is clear to us is that he has tried to move the weight of income tax from the wealthy, as well as try and protect and cushion the low income earners,” he stated.
Whilst most would be alarmed by the tax increase, Nzukuma said it would be interesting to see what the minister would do with the roughly 1% increase in income tax this would generate.
“If it is used to invest in things like infrastructure, for instance to leverage the electricity crisis, it creates very positive news for us,” he stated.
Apart from the tax increase, the budget also saw increased funding channelled towards education, healthcare and social grants, albeit by somewhat meagre amounts. With regards to the latter, pension, disability and veteran grants have all increased by R60 to R1410,whilst child grants has seen an increase of R10 to R330.
“I think he was constraint to increase by more than 4%. I know some people who say the grant increases are not substantial, but if one considers the state that we are in with low growth, it was possible that he could have said that there would be no increase,” he said, adding that any major increases could easily have affected the budget deficit.
Nzukuma added that it was advisable South Africans manage their finances well over the next year, save as much as possible, as well as avoid committing to any more debt. VOC (Mubeen Banderker)