Yesterday, Mr Gordhan stood up and delivered all his tax proposals. In order of outrage, here is what everyone is talking about:
- That new 45% tax bracket for the real big income earners;
- The 20% dividend withholding tax (it’s probably the one that I’m least pleased about);
- Extra sin taxes on tobacco and alcohol.
Unfortunately, we’ve all sort of missed the really big tax hike. But if you look hard enough, you’ll find it in Mr Gordhan’s tables of supporting data:
For all his talk about the middle class, the Finance Minister certainly isn’t leaving it untouched. 43% of the extra tax revenue that Mr Gordhan is collecting will come from that ‘limited bracket creep relief’ which gets thrown around in a very jargon-y sort of way.
- You are a hard-working, averagely-paid citizen.
- Life is mostly hard, but you work for someone that fastidiously increases your salary in accordance with inflation every January. So you’re up by 6% for 2017.
- Pravhin comes along, and decides that the government can’t possibly cut spending any more than it has already.
- He looks at your salary increase, and decides that he doesn’t just want a proportional amount of your increase.
- So he decides to ‘not adjust the tax brackets too much’. And only adjusts it upwards by a miserly 1%.
- Meaning that proportionally more of your salary will end up being deducted in tax than last year.
Let me show you:
So just to be clear, that’s not “extra tax” in general. If you’re earning 6% more income, than you should be paying 6% more tax. This is over and above that extra 6%.
Which is, you know, okay-ish for some people as you move up the chain. But just look at this relative to what taxpayers would have been paying, had Pravhin increased the tax brackets in line with inflation:
So the biggest impact is actually on those right at the cusp of being taxpayers (mainly because they might start paying tax for the first time).
And with that sleight of hand, Pravhin gets the largest chunk of his tax increase.
Of course, we still shouldn’t feel too bad. At least we’re not one of the 109,000 people being laboured with an extra R4.4 billion over and above the billions that they already contribute to the fiscus.
And as for that dividend withholding tax, that deserves its own post.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and like the Rolling Alpha page on Facebook at www.facebook.com/rollingalpha.