Budget 2014 – How does it affect you?

Angelique Ruzicka provides a round-up of the 2014/2015 Budget Speech:

Yesterday, Finance Minister, Pravin Gordhan had a tough job. With the elections coming soon he had to ensure that the budget catered to voters. However, with a deficit and slow growth to contend with he also had to ensure that he was sending the right message to ratings agencies and international investors to prove that South Africa would be dealing with its fiscal problems. Here we break down what the budget means for you:




  • Despite speculation being rife that Finance Minister, Pravin Gordhan, would increase income taxes for high earners this was not announced. VAT (value added tax) which currently stands at 14% was also not increased despite some market analysts predicting that the Finance Minister would do so.
  • Households are set to benefit from personal income tax relief of R9.25 billion, 40% of which will go to South Africans earning below R250,000 a year.
  • There will be an increase in the tax-free lump sum amount paid out of retirement funds from R315,000 to R500,000.
  • There was the inevitable announcement in the increase in ‘sin taxes’. This means that households will be paying an extra nine cents for a 340ml can of beer, 68 cents more for a pack of 20 cigarettes and R4.80 more for a bottle of whiskey. Fortified wine is set to go up by 83 cents a litre.
  • Motorists will feel the pinch yet again as there will be a general fuel levy increase of 12 cents per litre from the 2 April this year and the road accident fund levy will increase by eight cents per litre.


For savers and retirees


There was some good news for savers in this budget speech. They include:


  • The introduction of a retail savings bond by Treasury this year. “It will be accessible to community savings groups such as stokvels,” said Gordhan.
  • The introduction of a sukuk retail savings bond will also be explored Gordhan added, which will cater to Islamic investors.
  • While more detail is still necessary on tax preferred savings accounts, these products are still set to be given the go-ahead in 2015. This means that savers will be able to invest R30,000 a year tax free (with a lifetime limit of R500,000) a year into an investment product.
  • Saving for retirement is set to become mandatory. “We are currently consulting within NEDLAC on measures to cover the six million employed South Africans who do not enjoy access to an employer-sponsored retirement plan. We intend to move progressively towards a mandatory system of retirement for all employed workers,” said Gordhan.
  • You will soon no longer be able to draw down your entire pension if you change jobs. The rules surrounding pension preservation will be introduced in two phases. “In the first phase money will be preserved by default but there will still be access to it. This phase will be rolled out in the next few weeks. [In the] second phase you will have a certain percentage of your retirement savings while the rest will be preserved and this will be rolled out in 2015,” said a Olano Makhula, an economist working for the Treasury.
  • Charges that are directed at savers when investing money for retirement will also be scrutinised. “Agreement has been reached with the Association of Savings and Investment of South Africa on a way forward to reduce the level of charges for retirement savings products. Draft regulatory reforms will be published shortly,” said Gordhan.
  • There will no longer be confusion over how retirement savings vehicles will be taxed, as government are intent on harmonising the tax treatment of these savings vehicles. “ Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds, while at the same time protecting vested rights,” said Gordhan.




Last year, Gordhan said he was concerned by the abuse of emolument attachment (garnishee) orders, which had left many workers without money to live on after they have serviced their debts every month. He promised that he would conduct talks with the National Credit Regulator, the Department of Justice and banks to ensure that ‘the lending market remedies its behaviour’.In a press briefing he told Moneybags that talks with the regulator, the Department of Justice and the banks would be finalised shortly.


In yesterday’s speech he again reiterated government’s concern about household over-indebtedness. “Cabinet has therefore approved a number of measures to assist such households to reduce their debt burden, and to stamp out abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors. Working jointly with the Ministers of Trade and Industry and Justice, we will shortly commence actions against abusive and unsustainable practices,” said Gordhan.


Economic outlook


Referring to the financial crisis of 2008/9 Gordhan reiterated that the country had experienced a once-in-70-year economic earthquate, the aftershocks of which are still being felt. Here is South Africa’s economic outlook as it currently stands now and what Gordhan predicts over the coming years:


  • GDP is expected to grow by 2.7% in 2014, by 3.2% in 2015 and 3.5% in 2016.
  • The consumer price index (CPI) is set to breech 6% in 2014, averaging at 6.2% and reducing to 5.5% in 2016.
  • “Investment is forecast to increase by about 5% a year and the current account deficit will average 5.8 per cent of GDP over the medium term,” said Gordhan.


Where will your money go?


  • R42 billion will be spent on those suffering from HIV and AIDS.
  • The National Student Financial Aid Scheme allocation will increase from R5.1 billion given last year to R6.6 billion for 2016/2017.
  • The government has set aside R847 billion on infrastructure over the next three years.
  • The budget will have included in it an allocation of R6.5 billion over three years to support small and medium enterprises.
  • R15.2 billion will be spend on economic competitiveness and support programmes.
  • People living off social grants are set to see an increase this year and R410 billion will be paid out to 16 million South Africans. Social grants will now be paid out in the following way:
– The old age and disability grants will increase in April from R1270 a month to R1350.
– The foster care grant will increase from R800 to R830.
– The child support grant will increase from R300 to R310 a month in April, and to R320 in October.