• Sharebar
Thursday, March 1, 2012

One of the disappointments of this year’s budget is that the exemptions on interest received were not raised and there were hints that these may be scrapped altogether in the near future. They would be replaced by “tax-preferred savings and investments accounts” to “encourage a new generation of savings products” that could leave many savers worse off, comments Sean Segar, Cash Solutions at Nedgroup Investments.

He says many people, especially the elderly who receive special dispensation, are not aware of the generous tax exemptions available to investors when it comes to earning interest. They invest in products like Dividend Income Funds at lower net returns, before they have utilised their interest rate exemptions and tax rebates. As we do not receive much from SARS it is worth exploiting the few concessions that are available.
RMB Private Bank notes that the Budget was delivered against a backdrop of global investment uncertainty and extreme European government austerity measures. To put things in perspective, Greece is receiving a bailout of US$170 billion (R1 181 billion) to avoid national bankruptcy and has to commit to €3,3 billion in spending cuts.
In contrast, an expansion in infrastructure investment is one of the central themes of South Africa's 2012 budget. Living on the tip of African continent is not such a bad place to be! However, with increased government spending comes an increased focus on tax collection.
Says Sheshi Kaniki, senior economist at Momentum, “South Africa is expected to grow by only 2.7% in 2012 and 3.6% in 2013. This is a far cry from the 6% - 7% growth rate often cited as a necessary condition for real progress to be made in addressing the triple challenge of poverty, inequality and unemployment.
“It is important to note that the low economic growth in South Africa is only in part a result of the global environment. Many of the bottlenecks including inadequate infrastructure, a low level of household savings, and regulatory red tape are driven domestically. There is acknowledgement of this fact within government and several measures to address these challenges are being introduced through the Budget. For example, the introduction of tax-exempt savings products is being considered and from March 2012 the number of tax returns and payments for micro businesses will be reduced from 18 to two,” says Kaniki.
Comments Mike Browne of Seed Investments, “South Africa is fortunate in that it doesn’t have high debt levels and growth is at least expected to be positive, but the levels of unemployment require that we grow at rates not often seen in South Africa.” Public debt is expected to rise to 38% of GDP in 2014/2015 and then fall from there, this is much more sustainable than the figures closer to (and in some cases above) triple figures in Europe. Economic growth is expected to come in at 2.7% for 2012 which compares unfavourably to Sub Sahara Africa (5.5%) and developing Asia (7.3%), but is better than Developed economies at 1.2%. With inflation to the end of January coming in at 6.3%, South Africans should see nominal economic growth of around 9% in 2012.
The budget contained the usual target areas, but it was noticeable that there was a slight shift in focus from spending on consumption to spending on development of infrastructure, says Browne. “Pravin Gordhan wants government departments to rein back on salaries and focus instead on improving efficiency of delivery – it is estimated that only 68% of planned expenditure was spent in the current financial year! Social spending currently comprises 58% of government expenditure – up from 49% a decade ago – and the Minster admitted that the best way to reduce this dependence is through job creation and economic growth, not just increasing the subsidies.”
In tough economic times there is extra focus on revenue collection and in this instance SARS has assisted in bringing in five million tax returns in the most recent tax season. This is some 23% more than the prior year. There was also an extra R 1 billion in tax revenue from the recent Voluntary Disclosure Programme. By widening the tax net the government is hopefully able to keep tax increases to a minimum by spreading the burden across a bigger income pool.

Copyright © Insurance Times and Investments® Vol:25.3 1st March, 2012
584 views, page last viewed on February 14, 2020