Budget, Tax & Truth

With Budget 2011 a fortnight away, a quick recap of developments last year 

After the State of the Nation address in February that turned out to be less about the nation and more about the state (the state of the president, the non performing state of some ministers, the state of departments and stating the obvious), the Budget Speech was clearly for the rest of us. I’m referring to the elite, the “ordinary” South African, business owners, tenderpreneurs, the youth, refugees, sinners, gamblers and polluters, with some individuals falling into several categories.But you must not forget a simple “Budget Truth”: Middle & Higher Income taxpayers will be financially worse off.

If you study the budget speeches over the past ten years and subsequent promulgated legislation, what the one hand gives, the other grabs it away and takes a pound of flesh too. So in one hand, you should be grateful for the windfall in the form of tax relief, amnesty, deductions & new benefits.

And the hand takes it away in the form of a once off tax, new taxes, higher sin taxes, moving goal posts in existing tax provisions, increased levies & duties on consumption, pulling the net over existing allowances, benefits or contributions, shifting the time period for tax to occur, changing a qualifying % or R amount, changing who or what gets taxed in a transaction, breathing new penalties into existence or leaving inflation to erode past tax benefits.

If reading that list is enough to put small men on your head with hammers, remember it keeps the tax industry, gainfully occupied…forever.

The Budget Truth means that the bulk of the changes are going to affect middle and higher income taxpayers, a minority that have to subsidise the majority of the population. It has a dramatic impact on your workforce, come 1 March each year. For the same remuneration, their after tax income, work related expenditure, lifestyle expenses, savings/debt are squeezed tighter.
 
Budget Wrap
 
This year, tax relief was less than inflation, so you are financially helping the fiscus through we-are-slowly-coming-out-of-recession-period. You may also be chipping in future for Eskom, ACSA, SAA, SABC and SANRAL.While you can smile about not forking out for the national health insurance system in the short term, HR and other stakeholders should continue the debate. In the US, healthcare reform is still on the operating table, the stakeholders scrambling to cover their positions. For the 2010/2011 tax year, the medical aid tax deductions are R670 for the first & second beneficiaries and R410 per additional beneficiary, hardly enough to compensate for medical scheme hikes. 
 
Once again, the fiscus is limiting salary structuring or rather the remnants of it. Group life insurance and deferred compensation will be taxed and the company car tax is going up (if you are lucky enough to drive around in a company car, then the tax bill shouldn’t be a problem). After the retrenchment blood bath of 2009, the merging of the R 30 000 retrenchment lump sum into the retirement fund benefit system; is a short term timing benefit.
 
Notwithstanding that you get the tax relief and resultant cash flow benefit now, I’m worried about the tax dispensation (whatever it may be), when retirement day arrives.
 
Youth, Employment & Wages 
  
However what differentiated the 2010 Budget Speech from others was undoubtedly government focus on employment, skills development and the youth.
 
The National Budget Review devoted a chapter to employment for the first time, a worthwhile read for management and HR professionals. Given the high numbers of young people, especially graduates, that can’t break though the experience barrier to secure employment, the initiatives around minimum wage, probationary period and the youth wage subsidy are a positive move. While the youth wage subsidy and basic income grant have been mooted in the past, the former could significantly transform the employment landscape. Will the youth wage subsidy work? It is early days and by the time you read this column, a discussion document should be available.
 
Update: When I last checked, the wage subsidy was killed off…
 

(HR Future, May 2010) 

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