Budget Speech 2011 - Review

Pravin Gordhan gave his second annual Budget Speech yesterday afternoon. South Africans have become used to a predictable Budget Speech as delivered by the Minister of Finance, and this year was no different. Most of what was said had already been anticipated by the security markets, and other events on the day had more of an impact on our markets than the contents of the Budget.

A great deal is always made of the changes to the personal income tax brackets, as this is the most obvious (and typically highest) tax that individuals have to pay. The major change in this department each year is the shifting of the levels for each marginal tax rate. Every now and then there are changes to the specific tax rates, but for the most part the brackets are shifted to take into account the effects of inflation.

The chart below shows how the brackets have been adjusted for the coming tax year. It does look like quite a busy chart, but we will walk you through it.

The horizontal axis has been calibrated to show increasing monthly income levels. For each income level the chart shows how much tax was paid this year and how much will be paid next year on a monthly basis, as well as the marginal and average tax rates. The chart also indicates (in the green) what the ‘saving’ is at each income level as a result of the bracket creep. Saving is put in inverted commas as with inflation running at just under 4% (and typically around 6% pa) savings for the higher income earners are in nominal terms only.

At the R 35,000 a month income level and above employees will be paying more tax on a real basis (using an average inflation rate of 6%) while those earning less than this amount will in effect be paying less tax in the future should their income go up at the same rate as inflation.

According to a document released yesterday by SARS and the National Treasury there are some 52,446 taxpayers who earned over R 1,000,000 (R 83,333 per month) in the 2009/10 tax year, with 2,046 of them earning over R 5,000,000! This pool of taxpayers clearly plays an important part in the country’s fiscus, and SARS can be commended on working hard to widen the tax net over recent years.

Taxpayers over the age of 65 have always been given an additional rebate (i.e. they pay less tax then taxpayers under 65) and this year a further rebate was announced for taxpayers over the age of 75. The first R59,750 is tax free for taxpayers under 65, this raises to R 93,150 for those between 65 and 75, and R 104,261 per annum is tax free for taxpayers over 75.

The exemption on income earned from interest has increased to R 22,800 for taxpayers under the age of 65. This equates to R 712,500 invested in a 32 day call account at 3.2% being the threshold for all the income to be tax free. As interest rates fall, so the amount that can be invested in interest earning assets increases and vice versa.

Today we took a brief look at some of the aspects in the latest Budget. Next week we’ll take a look at a few more aspects. For links to some excellent summaries and in depth articles, please click through to our Facebook site. By clicking the ‘Like’ button at the top you will be kept up to date with relevant economic and financial news.

Take care,

Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Thu, 24 Feb 2011

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