Budget 2015 – Taxed to death

Budget 2015 NewsAuthor: TJ Strydom

Finance Minister Nhlanhla Nene has gone for the jugular of the middle class.

After half a decade of Pravin Gordhan taxing by stealth, Nene yesterday announced a raft of measures that will hurt high income-earners, luxury home-buyers and car-owners directly and almost immediately.

Nene will raise the marginal income tax rate by one percentage point for all tax brackets except the lowest from April 1. This is the first time since the 1990s that personal income tax has gone up.

But the increases will affect the well-to-do much more than the rest, thanks to the Treasury’s resort, as it has done before, to “bracket creep”. By shifting all tax brackets 4.2% higher it will mitigate the tax increases for lower income groups.

“The net effect is that there will be tax relief below about R450000 a year whereas those with higher incomes will pay more tax,” he said in his Budget speech yesterday.

There have been months of speculation about where Nene would find the R12-billion in extra revenue he needs this year. This amount was mentioned in his medium-term budget presentation in October, which is also when he first raised the spectre of income tax increases.

If you earn more than R701 300 a year – the highest category – you will soon pay more than 41c of every rand you earn above that to the SA Revenue Service.

According to Karen Botha, senior manager for tax at PricewaterhouseCoopers, a taxpayer who earns about R1-million a year can expect to have R379.22 less cash to take home every month.

“It is incredible to think that 11% of registered taxpayers bring in 61% of the total personal income tax payable in South Africa, yet the lower income earners get to take more home on a monthly basis. I am not sure how much longer the 11% will tolerate this,” she said.

But income tax is not the only pressure point Nene is using to squeeze more out of those with the means.

Homes bought for more than R2.25-million will, from this year, attract much steeper transfer duties. The Treasury introduced another layer to its calculations and those buying homes in this category will pay a fixed amount of R85000 in transfer duties plus 11c for every rand more than R2.25-million.

The increase in the percentage above R2.25-million is really a shifting of the transfer duty tax from the lower end of the market to the middle and upper end, according to Herschel Jawitz, CEO of Jawitz Properties.

“This sizeable increase for properties at this price level might dampen demand and have an adverse effect on property price growth because buyers will have to factor in the additional money to be paid on what are, by world standards, already very high transfer duties and legal fees,” said Jawitz.

The new measures will raise an additional R100-million for the fiscus – but that is small fry compared with the nearly R6.5-billion to be raised from higher fuel taxes.

Motorists will fork out an extra 81c/litre from April 1. This includes an increase of 30.5c/litre on the general fuel levy and another 50c for the Road Accident Fund.

The Treasury said the higher levies were aimed not only at raising revenue but also at reducing pollution.

The Road Accident Fund is a big worry. The Treasury estimates that the fund’s long-term liabilities are nearly R100-billion and projects that this will grow by 15% a year. Motorists will foot the bill and, if that turns out not to be enough, taxpayers will have to step in.

“Although the proposed 50c/litre increase in the fuel levy will reduce pressure on the fund it is insufficient to resolve its liquidity shortfall in 2015-2016,” the Treasury said.

Nene held back from raising VAT, said by many to be regressive and to hurt the poor more than the well-to-do. But he is waiting for a report on value added tax from the Davis tax committee.

According to Nene, tax revenue will be about R14.7-billion less than the budget estimate of a year ago.

Personal income tax has become an ever-more important source of revenue for the government. It now accounts for 36.4% of revenue. Corporate income tax and VAT receipts have fallen because of feeble economic growth.

Someone with a taxable income of R1-million a year would work 116 days this year to pay his income tax, compared to 114 days last year.

This Budget manages to keep the deficit to 3.9% of GDP for 2015-2016. It is estimated it will fall to 2.6% next year and 2.5% in 2017-2018