Then again, doing nothing is one (surreptitious) way of achieving something, for example by keeping the current income tax brackets unchanged, except at the bottom end of the table.
That’s the insidious way of hiking taxes. It means that people whose salaries are merely increasing in line with inflation, ie their buying power is not actually growing, could find themselves pushed into a higher marginal tax bracket and subjected to a higher average tax rate than before. This causes their real (after inflation) take-home pay to decline. It’s called bracket creep, and we have seen a lot of it in recent years.
The benefit of other exemptions has been eroded in similar fashion. Regulatory caps, such as on tax-free lump sums, minimum amounts subject to annuitisation, the limit on retirement fund and tax-free savings account contributions, have not kept pace with inflation. The estate amount that is dutiable (above R3,5m) hasn’t budged since 2007.
Retirement investors could take a leaf out of this ‘do nothing’ book. If you are already following a sensible retirement plan – saving adequately, investing for the long-term and paying low fees –just keep doing that. Don’t mess with the plan, and you’ll likely come out ahead in the end.
It’s not always easy, doing nothing. In times like these, when we are suffering the slings and arrows of outrageous fortune, you may feel inclined to take up arms against a sea of trouble, thinking that by opposing you could end them (for example, by trying your hand at market timing). That rarely ends well.
Yes, it’s been a traumatic few years, with Zuma at the helm, the state capture saga, our power station struggles, economic stagnation and modest market returns. Sticking to the plan during this time – saving consistently, playing the long game – may not have delivered immediate rewards and reassurance. But it is laying the foundation for long-term success.
It’s also what our new Finance Minister should do: set a sensible financial strategy to ease us out of this mess, not with one rash move, but through a series of soft, almost imperceptible braking manoeuvres that don’t alarm anyone, yet allow him, in time, to bring our spending in line with what we can afford.
That’s really the best we can hope for from this budget.
Chris Eddy is 10X Investments’ Head of Investments.
When doing nothing achieves something
By Chris Eddy
As South Africa’s Minister of Finance, Tito Mboweni, puts the finishing touches to his Budget speech, which he will deliver to Parliament on Wednesday, analysts are hard-pressed to imagine what he could possibly do to narrow the gap between incomings and outgoings.
