What Gordhan said, and what it means
In a thriving economy, people and business can afford to pay more tax. This, in turn, allows government to spend money on short-term priorities as well as on some longer-term priorities. On the other hand, an economy which does not grow sufficiently, presents a more challenging scenario - providing government with less money to spend.
Muller says our country's budget is, in a sense, no different to our own budgets -; with a focus on income and expenses.
"The Budget Speech contains an income section, referring to where Government gets its money from, and an expenses section, referring to how Government will spend this money. The expenses section deals with how our collective tax money will be spent to provide services to all of us."
While the Budget Speech deals with income and expenses over the next year, it also relates to medium-term spending as well as some very long-term implications for the financial situation of consumers.
How will the Budget Speech affect our pockets/wallets in the short term?
Impact on different taxes
Muller explains that the impact of the changes to the different tax systems will affect how much you receive of your salary every month (income tax and deductions), how much you pay for certain things (VAT and sin taxes), as well as how much you need to pay when you sell certain assets (Capital Gains Tax).
This year's Budget Speech only included changes to income tax. We can expect wider tax changes in future speeches since the Tax Review Committee, which is investigating changes and recommending reforms to the tax system, will issue its first reports during 2014.
Over the last few years, we started to anticipate personal tax savings and it was widely speculated that the Minister might increase personal income tax in this Budget. It was pleasing to note that personal income tax has not increased, Muller says. The Minister did, however, mention personal income tax relief of R9.3 billion to combat "bracket creep" or the impact of inflation.
We have all experienced how everyday things we buy become more expensive with inflation. Bracket creep happens when you receive a salary increase to help you keep up with increases in living expenses, but where this increase pushes you into a higher tax bracket. Therefore, when the Minister slightly adjusts the different income brackets, it is to ensure that we do not pay more tax because of inflation.
However, how much of this will reach your pocket depends on how much you earn, Muller says. For example, an individual earning R300 000 would have paid R65 471 based on the old tax tables (before rebates and deductions) and will now be paying R64 147, a saving of R1 324.
The primary rebate has increased from R12 080 to R12 726. This is the amount you can deduct from income tax every year. An increase in the rebate therefore means that you will also have a little extra money in your pocket.
If we look at the above example of an individual earning R300 000, taking the rebate into account, this person will pay income tax of R51 421 following these changes, compared to the R53 391 in the previous tax year. This translates into a total saving of R1 970.
For an individual earning R180 000 this saving amounts to R1 273 per year, and for an individual earning R500 000 it amounts to R2 937.
This is probably the most talked about set of taxes in the Budget Speech, perhaps because it is the most visible to us in our everyday lives. As was the pattern over the last number of years, there has also been an increase in most of the sin taxes. A 340 ml can of beer will cost 9c more and a packet of 20 cigarettes will cost 68c more. Whisky goes up by R4.80 a bottle.
There will be an overall increase in the fuel taxes from April 2014. This means that for every litre of petrol you will pay 20c more, or if you fill up a 60-litre tank it will cost you an additional R12.
The tax-free interest income has not been adjusted. The tax-free interest income will remain R34 500 for individuals aged 65 or older and R23 800 for individuals below 65. Muller says this means that you will not pay tax on the first R23 800 interest you earn if you are younger than 65.
Medical tax credits
The monthly medical tax credits will be increased from R242 to R257 for the first two beneficiaries and from R162 to R172 for everyone thereafter. This means that, for a family of four, your medical credits will increase from R808 to R858 resulting in a monthly saving of R50 per month
How will the 2014 Budget affect us over the longer term?
The Budget Speech is not all about tax, says Muller. On the long-term side of the Budget, we can look at the benefits we as citizens receive. In this Budget Speech the Minister continued to build on the topics covered over the last two to three years, namely National Health Insurance, encouraging household savings and retirement reform.
Encouraging household savings
South Africans are not good at saving. Muller says we consume most of our money and we don't save enough for tomorrow. "Not only do we need to save more to provide for our own future and for our families, but the economy also needs us to save."
With high debt levels and low savings levels, as a nation we are actually consuming today what we have not yet earned tomorrow.
In last year's Budget Speech the Minister indicated that there would be a focus on incentives to help us save. These products will be introduced from 2015, and the exact details of the workings of this savings initiative will be finalised this year
Muller says, as an investor in one of these products, you will not pay tax on the income you earn in the product - whether it be interest, capital gains or dividends; and you will not be taxed when you withdraw from the product. This means many South Africans will be able to make their savings work harder for them, as it will enable them to save up to R30 000 a year (with a lifetime limit of R500 000) and not pay tax on the return they've earned
The Minister also announced changes to the tax tables that apply to retirement lump sum benefits.
This means that the amount of tax payable on the lump sum you receive when you retire or when you are retrenched, has been decreased. Previously, the first R315 000 of your retirement benefit was not taxed - this has been increased to R500 000. For example, an individual receiving a lump sum benefit of R2 000 000 will now pay R472 500 in tax. Previously this amounted to R521 500, roughly 10% less.
Muller says it is also important to note that the relief provided in respect of the tax rates for withdrawal benefits is much less. This is to encourage people to keep their retirement benefits intact when changing jobs and not to use retirement savings for another purpose.
"In the 2012 Sanlam Benchmark Survey 19% of respondents indicated that they had withdrawn their retirement savings when they had left the employment of an employer. The worrying aspect is that 63% of people who withdrew the cash used it to settle debt and 30% used it to provide for living expenses. Only 8% of people who withdrew the cash used it to invest in other savings."
Very few South Africans are able to retire with sufficient retirement income. There are many reasons for this, including not saving enough and withdrawing retirement savings before retirement.Muller says retirement reform has been a topic of conversation over the last two years.
She says one of the proposals tabled in 2012 and finalised during last year's legislative process harmonises the treatment of tax over the different types of retirement funds. One of the main changes is that, from 1 March 2015, both employer and employee contributions will be taxed as a fringe benefit in the employee's hands. Employees may then deduct contributions of up to 27.5% of taxable income subject to a total limit R350 000.