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Not enough tax relief to improve household income

Posted On Monday, 29 July 2013 18:25 Published by Commercial Property News
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With SA's effective personal tax burden relative to income set to rise further this year, the decision keeps the combined fiscal and monetary policy impact on household finances negative.


John Loos

The Reserve Bank’s decision to keep the repo rate on hold at 5% last week would appear to be neutral for the SA consumer. However, with SA’s effective personal tax burden relative to income set to rise further this year, the decision keeps the combined fiscal and monetary policy impact on household finances negative.

First National Bank household and property sector strategist John Loos explains that because of SA’s fiscal squeeze, government is imposing rising effective tax rates on households. “This is done through often not providing sufficient annual tax relief to fully compensate for inflation-related bracket creep.”

By last year, household income and wealth taxes had risen to 13,6% of household income — the highest percentage since 1999 (see graph). Given the limited tax relief of R7bn dished out in the February budget this year, the figure is set to climb further.

When net interest costs are added, households’ combined payments bill amounted to 15,1% of household income in 2012, up from a mere 11,8% in 2003.

Loos notes that this tax rate doesn’t include municipal rates or utility tariffs, which are growing well above overall inflation — electricity tariffs at 10% year on year in May and “water and other services” (which includes municipal rates) by 9,2%.

However, not all the blame can be placed on the authorities. Higher levels of indebtedness relative to household deposit levels have meant that though interest rates are now lower than in 2002, that year saw net interest payments of only 0,1% of household income compared to 1,4% now.

With interest rates likely to remain low and stable well beyond 2013, households should use the opportunity to reduce debt, says Loos. “If the household sector wants to become less dependent on low interest rates (and less sensitive to interest rate hikes) it is necessary to develop more of a savings culture.”

While SA’s ratio of household debt to disposable income is down to 75,4% from the 2009 peak of 83%, it remains high by SA standards.

Last modified on Thursday, 13 March 2014 08:41

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