New squeeze on the way?

TJ Strydom

LAST WORD: Finance Minister Pravin Gordhan will deliver his final budget tomorrow
LAST WORD: Finance Minister Pravin Gordhan will deliver his final budget tomorrow

STRUGGLING consumers are likely to get some nasty surprises tomorrow when Finance Minister Pravin Gordhan delivers his budget. “We will probably see the fuel levy go up again by a few cents,” Solidarity trade union economic researcher Paul Joubert said.

This was expected despite the petrol price having increased by nearly 14% since Gordhan gave his budget address to parliament in February last year, with the fiscus pocketing about half of what motorists pay at the pump.

And the price is due to go up again next week by more than 30c, according to the Central Energy Fund.

In the past decade, the levy has mostly been pushed up, with only a slight pause in 2008, according to Joubert.

He expects the same will happen with levies on tyres and new vehicles.

Though most economists do not believe Gordhan will raise income taxes directly, the Treasury has a few tricks up its sleeve, most of them likely to affect the middle classes.

Analysts say that is because four out of every five tax rands paid in income tax come from a small pool of only 1.7 million people, who are unlikely to get any breathing space soon.

Though South Africa had nearly 14 million registered income taxpayers last year, the overwhelming majority of the revenue came from the much smaller pool, Solidarity said.

Its research shows that 3.7 million people paid 96% of all income tax. And even in this smaller group, one million people contributed very little – so 2.7 million South Africans actually shoulder 90% of the burden, and 1.7 million 80%.

“It is like being a member at a gym. Just because you’re registered, doesn’t necessarily mean you will be active,” Joubert said.

Old Mutual Investment Group economist Rian le Roux said big tax changes were unlikely as a commission appointed by Gordhan last year to review the tax system was still busy.

But Le Roux said he would not rule tax rises out completely.

Momentum Asset Management economist Sanisha Packirisamy saw the potential for some allowance for bracket creep on tax rates at the middle to lower end of the consumer market.

She said there was the possibility that Gordhan would increase income tax rates for higher-income earners or even increase the value-added tax rate.

“However, we see this as being more of a risk next year, given that this is an election year,” Packirisamy said.

The unexpected interest rate hike last month was also putting pressure on middle-class consumers, she said.

Joubert said the middle-class was being squeezed from all sides and could in fact be seen to be double-paying for many services. “That is why we approached the Treasury to allow private security costs to be tax-deductible, but after initial discussions we have not heard anything from them.”

On tax for the past year, Joubert said the tax threshold had been increased by only 5.6%, while the thresholds of other tax brackets were increased by 3.5%.

“As those increases were lower than the prevailing inflation rates, these adjustments, in fact, brought about a heavier tax burden and did not constitute tax relief,” Joubert said.

Only if one’s income remained unchanged would the tax break have amounted to relief.

Meanwhile, most economists expect Reserve Bank governor Gill Marcus to push up interest rates again next month as inflation expectations are still uncomfortably high.

 

4 thoughts on “New squeeze on the way?

  • February 26, 2014 at 1:58 pm
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    tax payers pay more every year for everything, as the petrol goes up so does everything else maybe the Gouvernment and Minicipal entities should stop stealing (Fraud, corruption) maybe there will be enough for the ANC to run this country properly but i doubt it

    Reply
  • February 25, 2014 at 12:33 pm
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    well it would appear that as south africans we are in for a grim time in the future. i do not know how blood can be gotten from a stone, there is only so much money to go around. if the gouvernment keeps on taking and taking whether it be through taxes or levies or fraud and appropriation, the normal people will no longer be able to look after themselves and their children. salaries go up as little as possible(unless you are an M.P.)the gaps between having enough and not having enough to make ends meet is growing smaller at the rate of knotts. these increases effect every area of our life and have a snowball affect.
    how are pensioners and people who live on grants going to live. it is scary. Dallas

    Reply
  • February 25, 2014 at 11:24 am
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    Fleece the tax paying public and ignore the poor,i`m alright Jack!

    Reply
  • February 25, 2014 at 11:22 am
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    Are we to expect other high ranking government officials to also be planning their new estates ala Zuma?after all Gordhan only does what he is told!

    Reply

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