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“Our bigger challenge… is that our pie is not growing fast enough and this limits our ability to generate sufficient revenues to distribute among our priority areas.” (Finance Minister Enoch Godongwana – Budget 2024)

Finance Minister Enoch Godongwana’s third Budget Speech in an election year contained few surprises, but also little in the form of good news, especially for South Africa’s personal income taxpayers.

The Minister quoted dismal real GDP growth of 0.6% for 2023, which is projected to reach 1.6% between 2024 and 2026. This poor economic performance is ascribed to the persistent constraints in electricity supply and freight, rail and ports, as well as a high sovereign credit risk.           

And the result? A sharp drop in tax revenue collection for 2023/24 which, at R1.73 trillion, is R56.1 billion lower than estimated!

To make up the shortfall, Budget 2024 contains tax measures that will raise an additional R15 billion in 2024/2025, mainly through income tax raised by not adjusting personal tax brackets, rebates and medical tax credits for inflation, as well as above-inflation increases in alcohol and tobacco excise duties.

Other main proposals included no increase to the general fuel levy for 2024/25, a global tax on multinational companies in South Africa with an annual revenue exceeding €750 million and the R150 billion withdrawal from SA's Gold and Foreign Exchange Contingency Reserve Account.

Budget proposals that will impact you

• Addressing the Budget shortfall, personal income tax brackets are not adjusted for inflation - so individuals who received a salary increase this year are likely to pay more tax as they could fall into a higher tax bracket.
   
• No inflation adjustments to the tax rebates.
   
• Medical tax credits per month are not increased by inflation.
   
• A one-year extension in the R350 Social Relief of Distress (SRD) grant and increases ranging from R20 to R100 per month in other social grants.
   
• Above-inflation increases in the excise duties on alcohol and increases of between 4.7 and 8.2% on tobacco products. This means that the duty on:

• a 340ml can of beer increases by 14c,
   
• a 750ml bottle of wine goes up by 28c,
   
• a 750ml bottle of fortified wine goes up by 47c,
   
• a 750ml bottle of spirits will increase by R5.53,
   
• a 23g cigar goes up by R9.51,
   
• a pack of 20 cigarettes, rises by 97c,
   
• vaping products increase to R3.04 per millilitre.

• Two-pot retirement reform to be implemented on 1 September 2024, allowing individuals access to a portion of their retirement savings before their retirement date.
   

Tapping into the Reserve Bank’s pot of gold

The recent withdrawal of R150 billion from the Gold and Foreign Exchange Contingency Account is a significant development. The purpose of the withdrawal is to avoid a full-blown debt crisis, which creates hope. However, some experts have suggested that these reserves should rather be used to stimulate economic growth.

We now know that since the budget speech, the Rand has already weakened significantly, and business confidence has dropped.

We continue to invest in highly uncertain times, and one thing you cannot compromise on this year is reviewing your investment goals. Changes to your portfolio may be necessary, including moving to less risky options. It may, however, be wiser to leave the asset allocation unchanged, depending on your time horizon.

Either way, as your financial advisors, we should certainly review your portfolio to ensure it remains fit for purpose.

B is for Budgeting

While there are no major tax hikes, the fact that tax brackets have not been adjusted in line with inflation means that you will more than likely be paying more tax than you were last year. If 2023 was tight, 2024 promises to be even tighter.

Against this backdrop, budgeting becomes more important than it’s ever been. Now is a fantastic time to scrutinise your budget and identify areas where you might be able to reduce expenditure without impacting your investment goals.

One of the first places to look is your tax strategy. Another way of reducing expenses is to watch out for “lifestyle creep: - what happens when you incrementally increase your standard of living as you earn more and have more discretionary income at your disposal. Examples of lifestyle creep include flying business instead of economy class, buying a new car unnecessarily, or buying a bigger house in a swanky area and pushing your credit to the limit. Want to hear a secret? Lifestyle creep doesn’t actually improve true quality of life, all it does is result in a financially stressful retirement. 

When the going gets tough, the tough get going

As experienced financial advisors, we have seen it all before and we know what will work for you. Please drop us a line if you have absolutely any questions about how the Budget affects your investment portfolio.