Finance Minister Enoch Godongwana delivered a 'good-news' budget on 23 February 2022. Billions of rand in relief for taxpayers; social grant hikes; and no increases in personal income tax, VAT or the general fuel levy, left most consumers optimistic.
Government is allocating an average of 59.4% of consolidated non-interest spending over the medium term to address poverty and unemployment, and to support the economic recovery. The Covid-19 social relief grant will continue for the next 12-months and the question arose whether this grant could be renamed as a basic income grant going forward.
Commodities traded at elevated levels for most part of 2021 seeing an improved in-year revenue performance. This in turn led to better than expected tax revenue collections.
Going into 2022 we welcome the tax decisions such as a lower corporate tax rate and no changes to the personal income tax bracket.
GDP growth is expected to average 1.8% over the next three years. Significant risks to this outlook remain especially amidst the recent geo-political unrests in eastern Europe. The increase in dependence on social grants combined with the continuous increase in unemployment, remains a huge challenge.
From an investment perspective the only real and material change is the Regulation 28 amendment which will be gazetted in March 2022. The change will see an increase in offshore allocation within retirement annuities and preservation funds to 45%. No changes were made to the tax-free savings allowance. There's also an additional reform set to take place when the FSCA publishes its transformation strategy in February 2022, outlining its approach promoting financial sector transformation.
In 2021 the National Treasury released two papers addressing outstanding issues from the retirement reform process. During 2022, work will continue on amending the relevant legislation to implement the two proposals. These proposals are:
1) Members of a commercial umbrella fund should elect at least 50% of the members of the board of trustees.
2) Increase household savings and widen coverage of retirement funds, as it is not currently compulsory for employers to provide employee retirement benefits.