Trouble for middle-class South Africa – as government dips deeper
Analysis of the Budget 2024 shows that the government is turning to collecting higher proportions of income tax revenue – which spells bad news for middle-class taxpayers in particular.
Various parliamentary aides – such as the Parliamentary Budget Office (PBO), Parliamentary Research Unit (PRU) and the Financial and Fiscal Commission (FFC) – presented their analyses of the 2024 Budget to the portfolio committee on finance this week.
While the groups had varying takes on the budget – raising concerns around everything from state-owned companies to questioning the budget policy framework in its entirety – accompanying data showed that there is increased pressure on taxpayers to fund the government’s plans.
As part of its presentation, the PBO provided a five-year review of the government’s big tax policy changes during the sixth administration.
During this time, personal income tax (PIT) is projected to increase to close to 40% of gross tax revenue – the highest point since the 39% levels before Covid-19 hit.
Notably, during the sixth administration, the Treasury consistently offered some relief to income taxpayers – but this has now come to an end.
This is most evident through the Treasury’s decision not to adjust tax brackets to account for inflation, which is considered a “sleuth tax”.
This is expected to raise over R16 billion for the nation’s coffers, and comes in stark contrast to the adjustments made since 2019:
- Budget 2020: Above inflation adjustment to tax brackets and rebates, relief to individual taxpayers
- Budget 2021: Above inflation adjustment to tax brackets and rebates, relief to individual taxpayers
- Budget 2022: Inflation-linked adjustment to tax brackets and rebates
- Budget 2023: Inflation-linked adjustment to tax brackets and rebates
- Budget 2024: No change to tax brackets and rebates
While the decision not to hike fuel levies provides some relief (an estimated R4 billion), this is not enough to counter the additional taxes raised by freezing brackets (R16.3 billion) and the medical aid tax credits (R1.9 billion).
The PBO also noted that these tax changes for 2024/25 have been projected across three years – which it said is “not the norm”. This deviation from previous budgets has given rise to speculation that the tax bracket freeze may persist for the next three years.
Tax experts, however, have argued that this is not the case and is just part of the Treasury’s fresh bid to be more transparent in its budget justifications.
Regardless, alongside the PBO’s data, the Parliamentary Research Unit noted that the “bracket creep” from not adjusting tax brackets is often a significant issue for South African households, particularly the middle class.
“With the absence of inflation consideration, some taxpayers may move into higher tax brackets – mainly middle-income households,” it said.
The Financial and Fiscal Commission said that this is a situation where taxpayers will be pushed into higher tax brackets and effectively taxed more – at the same time, their real purchasing power may remain the same or deteriorate.
Thabani Ndwandwe, Head of Risk at Standard Bank South Africa, said that the decision not to provide relief from bracket creep would put pressure on taxpayers across the earnings spectrum who are already experiencing financial strain.
He added that high inflation and interest rates erode purchasing power, making the lack of tax relief an even more prominent pain point for households.
South Africa’s money PIT
The parliamentary groups also pointed out that personal income tax (PIT) revenue is projected to accelerate faster than VAT – while corporate income tax (CIT) is expected to remain flat.
PIT has increased from R527.6 billion in 2019/20 to R649.8 billion (revised) in 2023/24, and is estimated to hit R738.8 billion in 2024/25 – up 13.7%
VAT has increased from R346.8 billion to R445.3 billion (revised) in 2023/24. The estimate for 2024/25 is R476.8 billion (up 7%).
Despite an increase to R344.7 billion in 2022/23, CIT is projected to decline to R301.4 in 2023/24 (revised) and to slightly increase to R302.7 billion in 2024/25 (estimate), up 0.4%.
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