If you own a car, you’ll now have to fork out more when filling up its petrol tank thanks to increases in both the fuel and Road Accident Fund (RAF) levies.
According to today’s Budget Speech, the general fuel levy will rise by 22 cents per litre, while the RAF levy increases by 30 cents per litre. These increases will be implemented from 4 April 2018, resulting in a combined 52 cents in additional money that consumers will pay for each litre of fuel.
You’re also likely to be impacted by a higher value-added tax (VAT) rate (which Finance Minister Gigaba raised to 15% from 14%) on new vehicle purchases including tyres, parts and other accessories. Aspirant owners of luxury cars will also be hit by a higher ad valorem tax (tax that is based on the assessed value of an item).
According to Craig Polkinghorne, Head of Business and Commercial Banking at Standard Bank, the increased RAF and fuel levies, along with the rise in VAT, will have some inflationary impact. However, if the budget is judged by the market to be business and investor friendly, the rand is likely to react positively, which will, in turn, ease inflationary pressures by reducing the cost of imported fuel and other goods.
The Finance Minister’s 2018 Budget Speech came shortly after a report by Statistics South Africa that showed that inflation eased to 4.4% in January, down from 4.7% in December. That was the tenth consecutive month that inflation has remained within the Reserve Bank’s target band of 3% to 6%.
South Africans should still consider retirement annuities (RAs) as a mechanism to neutralise the impact of taxes on their post-retirement financial goals, despite the fact that there was no significant increase in personal income taxes in the 2018 Budget.
Finance Minister Malusi Gigaba today left the marginal tax rate at 45% for individuals earning more than R1.5 million a year. Instead, the National Treasury plans to raise R6.8 billion from the personal tax system by limiting inflation relief for personal tax rebates. The lowest three personal income tax brackets and the primary, secondary and tertiary rebates will be partially adjusted for inflation with a 3.1% increase, while the top four brackets will remain unchanged for the fiscal year.
Errol Meyer, Head of Advisory Services at Standard Bank Financial Consultants, asserts that RAs are a tax-efficient savings vehicle that can help consumers stay on track with long-term financial planning goals. He points out that RAs are not only for retirement purposes; they are a tax efficient way of building up funds to finance your long-term future.
As of 1 March 2016, South African taxpayers were allowed to place as much as 27.5% of their earnings in retirement savings vehicles, and receive the full amount as a tax deduction, albeit in the current year or the following years of assessment. It makes sense to use this full tax-free allocation; taxpayers can even include any capital gains they are liable for in a particular year of assessment as part of the 27.5% tax deduction.
Current estimates indicate that only between 3% and 6% of South Africans can afford to retire, thanks to the country’s pitifully low savings rate. The so-called “sandwich generation” will be under particular pressure, because this section of the population - who are typically within 10 years of retirement - are responsible for supporting their own children while also caring for their aging parents. According to some research, approximately 50% of all South African adults fall into this “sandwich generation”.
Rather than fret about the tax burden, Mr Meyer says consumers should rather focus on improving their financial planning to meet their post-retirement goals. Apart from RAs, consumers can also take advantage of tax-free savings accounts as a means of gaining relief from taxes.
“The trick is to rewire rather than retire,” he says. “Instead of retiring from life, rather look at how you can rewire for new challenges, one of which will be planning for your financial wellbeing.”
Regarding today’s Budget Speech, Standard Bank Economist Dr Elna Moolman says improvements in the budget deficit and debt trajectories (from with the Medium-Term Budget Policy Statement forecasts) exceeded our expectations.
These improvements, she says, are caused by a combination of substantial tax hikes, more supportive macroeconomic assumptions and large expenditure cuts (including, unfortunately, bigger cuts to infrastructure spending).
Government’s cost estimates for the free tertiary education (FTE) policy were below our assumptions, while tax hikes were somewhat bigger than expected. Spending cuts, meanwhile, significantly exceeded our expectations.
In line with the increased optimism of recent weeks, Dr Moolman expects bond and currency markets to react positively to the Budget; there is relief to the bond market due to the decline in the borrowing requirement (the amount that needs to be borrowed to fill a budget deficit), while the currency market (the market in which participants from around the globe are able to buy, sell, exchange and speculate on different currencies) may react slightly positively as a further sovereign credit-rating downgrade by Moody’s seems less likely. The immediate impact of the significant fiscal consolidation (a policy aimed at reducing government deficits and debt accumulation) on the equity market is negative, particularly for consumer and construction stocks, although there is less chance of longer-term fiscal risks.
Overall, the budget struck a reasonable balance between fiscal sustainability and economic growth considerations. The main budget deficit (the result of expenditure exceeding revenue) is projected to narrow from 4.6% of GDP in the 2017/2018 financial year (FY17/18) to 3.8% in FY18/19, and 3.7% in FY20/21. The gross borrowing requirement decreases from R246 billion in FY17/18 to R224.2bn in FY18/19, with domestic short-term loans declining materially and domestic long-term loans retreating marginally. The VAT rate increase should have a slight negative impact on our inflation and consumer spending (and in turn, economic growth) forecasts, but this will be brief.
The new revenue forecasts appear reasonable, though subject to moderate downside risk. While they are supported by higher economic growth forecasts, the new and higher tax buoyancy assumptions exceed ours and pose a moderate downside risk to the revenue projections. The corrective fiscal steps taken in this budget exceeded our expectations.
In a nutshell, says Dr Moolman, the key fiscal adjustments are tax hikes worth R36 billion in FY18/19 (which feed through to the outer forecast years; this includes R22.9 billion from a VAT rate hike), and R85 billion of spending cuts (including R39.7 billion cuts to capital transfers) over the medium term, which is counteracted by an additional R57bn allocated to FTE.
Though this year’s Budget comes during significant political change and the prospect of another ratings downgrade, positive signs indicate that consumers could help drive the economy forward.
According to Standard Bank economist Dr Moolman, the man and woman on the street should experience lower inflation this year at an average of 4.4%. So, if wage growth is around 6.5%, it would mean real wage growth of about 2%. This should increase consumer spending in the coming year, in turn driving economic growth to a large extent – despite tax increases.
Unfortunately, wealthier taxpayers and those who enjoy alcohol, tobacco and cool drinks will be a little harder hit, according to our predictions. On the wealth tax front, estate duties could be increased from the current 20% to 30% alongside a similar increase in donation tax. This would yield an extra R1.5 billion in revenue. From April, the sugar tax bill will be implemented (possibly yielding additional revenue of about R1.5 billion), while normal sin tax increases on tobacco and alcohol should yield an additional R2.5 billion.
While many economists see a VAT rate hike as the quickest way to rake in more revenue for a stretched treasury, Dr Moolman doesn’t believe this is on the cards due to the 2019 election; VAT hikes negatively impact the poor and will be an unpopular move politically. Adjustments to increase the effective VAT rate are more likely.
According to Dr Moolman, it’s also possible to avoid a downgrade – for now. This comes as Moody’s rating agency is closely monitoring the political climate as well as the Budget before making further sovereign ratings decisions. However, it’s a very close call and will require decisive government action.
On the negative side, broad-based fiscal drag is becoming a greater concern every year, as tax brackets are not adjusted for inflation in the Budget, meaning people who earn a little more to keep up with inflation are dragged into a higher tax bracket and taxed accordingly. Only modest relief for the lowest income groups can be expected this year.
Dr Moolman cautions that it’s important to place the Budget in context after the Finance Minister signalled total revenue increases – including tax hikes and any assets that government can sell – of about R30 billion in the coming fiscal year. “So while the tax hike portion of the increases will weigh on the consumer, this is not the only area government is looking at. If last year’s tax hikes were estimated to be worth around R28 billion, and we get around R25 billion of hikes this year - with potential asset sales helping get to the R30 billion revenue increase estimate - then it is not more than what consumers faced last year.”
The 2017/2018 year of assessment is about to come to an end. If you haven’t maximised your annual 27.5% tax deduction of either your taxable income or remuneration, now’s the time.
A productive way to do this is through a retirement annuity, or RA. Essentially, this financial solution pays out income after a certain amount of time and, so, is a great retirement strategy. Here’s how it works: you put money into the annuity throughout a number of years, and then it makes payments to you on a future date or series of dates.
Your income from your RA can be paid out monthly, quarterly, annually or even in one lump-sum payment. The size of your payments are determined by a number of factors, including the length of time you spend investing into the retirement annuity.
There are many reasons to invest in an RA, the most prominent being the attainment of a secure retirement. But another attractive benefit is the fact that the more money you put in, the more you save on tax. Take this list of advantages:
In addition to the above, RAs also offer:
At Standard Bank, we know that each individual can have a variety of unique ‘nexts’, but one is always universal: reaching a secure and happy retirement.
In uncertain times the value of good advice and a good plan are even more important. Take the first step:
Call us on: 0860 034 778,
Email us at: [email protected]
or Request a Call Back here.
Standard Bank as the the proud sponsor of the Men’s Proteas team in all three formats of the game, ODI, T20, Test, is excited to join forces with Cricket South Africa in support of the team’s campaign in raising funds and driving awareness for the breast cancer.
PINK DAY taking place on the 10th February 2017, is about celebrating human spirit to overcome breast cancer and supporting those individuals who have been diagnosed. Survivors, friends, families and cricket fans will #PitchUpInPink at the Bidvest Wanderers Stadium, on Saturday the 10th February 2018 for the One Day International 2017/18 - ODI South Africa vs. India. The game will commence at 13:00, where Standard Bank will donate R10000.00 (ten thousand rands) towards the Breast Cancer Unit at the Charlotte Maxeke Johannesburg Academic Hospital for every wicket taken by the Standard Bank Proteas.
On the day there will be activations by Standard Bank and other sponsors, and Standard Bank invites fans attending the match to participate in the most fun full pink Facebook Filter. The Filter will allow fans to take a selfie of themselves dressed in a Pink Proteas kit, and can either save or share the photo on social media using the #PitchUpInPink hashtag in support of the Pink Day initiative and to those who have suffered breast cancer. This is the most unique initiative aimed at assisting to raise awareness and funding to fight breast cancer.
For more details on the Facebook Filter (Pink Standard Bank Proteas kit), Click here.
At Standard Bank, we're continually investing in, enhancing and working to maintain our systems in order to meet the ever-changing needs of our customers.
For this reason, we’ve scheduled system downtime for 19:00pm on Sunday 18 March until 02:00a.m. on Monday 19 March. Though you'll still be able to use your Standard Bank credit cards to make in-store or online purchases, the following services will be disrupted:
We know this service disruption will be inconvenient for you, but it is necessary to keep our system performing at its efficient best. To ensure your daily life isn't too disrupted by the downtime, consider the following:
If you have any questions, please call the Standard Bank Call Centre on 0860 123 000.
In December 2017, Aretshepane Burial Society in Tembisa was selected as the winner of Standard Bank’s Savers’ Draw Competition and awarded R50 000. Why? Because we’re not only focused on our bottom line, but also our role in bettering society. Since 2017, we’ve been celebrating and rewarding society schemes - or stokvels throughout the country that maintain a healthy account balance.
Mike Ramolahlehi, Manager: Savings Portfolio (PBB) at Standard Bank, believes South Africa’s economic success depends, to a large extent, on the nation’s saving and investment practices.
This is why the bank invests in all communities in a customer-centric fashion, creating financial solutions that are easy to understand and use, and are geared towards getting our customers to their ‘nexts’.
Stokvels have always been a popular method of saving among South Africans living in townships and rural areas, often coming to the rescue when unforeseen financial challenges arise. As the bank that drives Africa’s growth, we’re committed to empowering township economies by cultivating a savings culture within the stokvels market; we launched the Society Schemes Savers’ Draw Competition to encourage savings. Every month, a group account is selected and awarded R5 000 for maintaining a healthy account balance. Once a year, an extremely lucky society scheme wins R50 000 for the same reason.
Africans have always had a solutions-driven culture. Now that stokvels have been formalised and made mainstream with a variety of bank products, more and more people, even in “poverty-stricken communities” are contributing positively towards the development of township economies, thus invigorating the market and making a sound and meaningful contribution to the greater South African economy.
“Over the years, we have learnt that the practice of saving and investing is a means of empowering ourselves as women,” says Lisbeth Motseo from December’s winning society scheme; Aretshepane Burial Society has 16 committed members and was established only two years ago. “Our stokvel has served as a reminder that together we can achieve what we cannot always achieve alone.”
Throughout this year, Standard Bank will continue investing in communities, moving Africa forward.
For more information on Standard Bank’s Society Scheme service offering, visit our website.
Climate change comprises a number of devastating consequences. One of these is desertification, the expansion of desert areas to the detriment of plants, animals and people. This is occurring throughout the world, but Africa is in the early stages of a brilliant solution to fight back – the Great Green Wall.
Led by the African Union (AU), the Great Green Wall is a 20-country strong initiative to transform the lives of those living in regions on the frontline of climate change by providing greater food security, employment opportunities and regional stability in the face of persistent drought, increasing lack of resources and mass migration to Europe. An 8 000km band of green and productive landscapes is being created across North Africa, the Horn and the Sahel, the southern edge of the Sahara desert and one of the poorest places on earth.
The idea of a Great Green Wall is an old one: in 1952, English forester Richard St Barbe suggested a 50km-wide “green front” of trees to contain the spread of the Sahara. From the seventies, droughts in the Horn of Africa and Sahel invigorated this idea, but it was the AU, in 2007, that approved the Great Green Wall in its current incarnation – one that involves productive land as well as indigenous plants.
According to the project’s website, the Great Green Wall has achieved marked success to date. It’s “growing” fertile land; food security; green jobs and, so, providing income to families and a reason to stay for thousands who would otherwise leave for Europe; and economic opportunities for commercial enterprises. Progress has also been made on several other fronts. According to Elvis Paul Tangam, AU Commissioner for the Sahara and Sahel Great Green Wall Initiative, the greatest achievement is that those in the regions the wall covers have accepted working together for a common goal.
Tangam points out that there has been success on the ground: about 15% of the actual “wall of trees” is already planted. In Senegal, for instance, more than 27 000ha of indigenous trees have been planted. These don’t need watering, and they have resulted in the return of many animals that have not been seen for decades. In Mauritania, Chad and Nigeria, market gardens and small farms have taken root, giving the young population work. However, it will be a few years before these interventions are self-sustaining, but they also need to be profitable (selling to both national and international clients) and they are nowhere close.
Though the project faces its share of challenges, the Great Green Wall’s successes, so far, outweigh them. It also doesn’t need to be said that abandoning the initiative is simply not an option if Africa is to withstand climate change and continue its development.
“The Great Green Wall is about development; it’s about sustainable, climate-smart development at all levels,” explains Tangam.
Once complete, Africa’s Great Green Wall will be a living symbol to human resilience and a natural Wonder of the World.