Not paying more tax next year? It's a chance to save
It’s almost as good as getting a SARS refund. The news that personal income tax won’t go up as nearly as much as many people expected, that is. Thanks to Finance Minister Tito Mboweni, saving money just got a little easier, says Old Mutual Corporate Consultants’ Head of Advice, Andrew Davison.
Here’s what retirement savers can do with their ‘Mboweni money’
Finance Minister Tito Mboweni’s 2020 Budget provided an unexpected yet welcome surprise for embattled South African consumers. Amid widespread expectations of increases to personal income taxes and possibly even VAT, the Minister opted to rather tackle the expenses side of the equation. The result is that income tax brackets will be adjusted by slightly more than inflation so that taxpayers won’t pay more tax merely because they get an inflation-related increase in salary. While this tax relief might not be substantial, it is certainly welcome, given that we became used to the so-called bracket creep over the past few years. For savers, any concerns about an increase in Capital Gains Tax or Dividends Withholding Tax also proved to be unfounded as neither materialised. This minimises the drag on investment returns and increases net returns, which incentivises people to save. Of course, saving in a retirement fund or retirement annuity avoids such taxes altogether. By increasing the amount that can be saved in a tax-free savings account from R33 000 to R36 000 per year, Minister Mboweni placed another carrot in front of our noses. The lifetime limit remains at R500 000.
So, what to do with the extra cash?
Our advice to South Africans? Heave a sigh of relief but don’t relax completely. The economy remains on its knees and it will take a concerted effort by all sectors – government, business, unions and the people – to turn it into a thriving, vibrant, globally competitive country where we can all find jobs and provide for our families. One small way to contribute to this is to take the small tax relief that has been provided by the Finance Minister and put it into your savings. Instead of spending a bit more, save a bit more. If everyone saved an extra 1% of their monthly income (or the bit they thought they were going to lose to higher taxes) from 1 March 2020, the pool of savings in the country will increase significantly. This will greatly benefit us, both as individuals and as a country. If these savings were to be directed towards those areas that create sustainable growth and employment – such as infrastructure, renewable energy, schools, low-cost housing and funding small and medium-sized enterprises – we will all benefit even more. Banks, insurers, asset managers and other financial services providers can play their part by designing more products that invest in impactful ways to grow South Africa, and by taking on more risk by funding small and medium-size businesses they might previously have shunned. It’s in our hands.