This tax increase will be the ‘main blow’ in South Africa’s budget: analyst

Old Mutual analysts expect finance minister Enoch Godongwana to deliver a ‘boring’ budget speech on Wednesday (23 February), which is ultimately good news for taxpayers.

“Many are still recovering from the personal costs of the Covid-19 pandemic, which closed the doors of small companies, depleted savings bases and in many cases left people unemployed. Keeping things, the way they are will, therefore, be welcomed,” said John Manyike, head of financial education at Old Mutual.

But as unpleasant thoughts of more personal tax and a VAT increase drift into the background, the budget is still likely to hit citizens hard, he said.

He noted that an increase in the fuel levy will help bolster the Road Accident Fund which is currently facing massive financial shortfalls.

“To Mr and Mrs Average SA, this means that the taxi or bus ride to work will get more expensive, that inflation will rise, and the cost of an average bag of groceries will go up once again.

“It’s tough, particularly when South Africans, who aren’t known for their saving abilities, are already using more than 67% of their monthly incomes to pay off existing debt. At its simplest, this means that only 33 cents in every rand are available for families to live on- reducing these 33 cents means that living will become more challenging.”

The Automobile Association (AA) of South Africa has warned the government against any planned fuel tax increases in its 23 February budget, which it says will be particularly damaging following record-high increases.

The General Fuel Levy is currently pegged at R3.93 per litre (up from R3.77 in 2021) and the RAF levy at R2.18 per litres (up from R2.07 in 2021). Combined they add R6.11 to every litre of petrol and diesel sold in the country.

Any adjustments announced by the finance minister in the February Budget Speech are implemented annually in April.

The AA said any adjustments to the collection rates of these levies will have severe consequences for consumers and they should not be altered.

“Our country faces enormous and complex economic challenges. High fuel prices are adding to these challenges and instead of accepting the current model, we must seek solutions that benefit consumers, not place them in more financial distress. One immediate solution for us, for instance, is to review the funding of the poorly managed Road Accident Fund (RAF).

“Our reliance on the RAF is a direct result of South Africa’s poor road safety and that’s where more attention needs to be given for a long-term solution,” it said.

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