Last week was a very strange time to be a financial journalist. Journalists are usually given a copy of the budget before the Finance Minister tables it in Parliament. After spending the entire morning at Parliament writing our stories about the impact of a planned 2% increase in VAT, we were informed at 2pm that the budget was cancelled.

The impact of the VAT increase would have been felt most heavily by middle and upper-middle-income earners. According to Treasury, 75% of VAT revenue is derived from households in the top four expenditure deciles. If one correlates spending to income brackets, this suggests that people with incomes of R500 000 or more a year – or R41 000 a month before tax – would pay the bulk of the additional R58bn to be collected through the higher VAT rate.

On the same day that VAT would have been increased to 17%, Eskom customers will experience a 12.6% increase in the cost of electricity. The electricity price increase combined with the VAT increase would have meant that electricity would cost 14.6% more.

We will have to wait until 12 March to find out where the government plans to get the additional R58bn or whether it will cut expenditure.

It will certainly use inflation as a way of increasing tax revenue. In the 2024 Budget Review, the tax tables were not fully adjusted for inflation, which means that a person receiving a salary increase in line with inflation would pay more tax. This is commonly known as bracket creep: even if you receive an inflation-related raise, you might be pushed into a new tax bracket and pay relatively more in tax.

In the “budget that was not”, only the first two tax brackets were fully adjusted in line with inflation, with higher-income earners not receiving a full inflation adjustment.

The budget (that was not) did not mention an increase in the limits for tax-free savings accounts or any increases in the exemption for capital gains tax.

The true cost of not adjusting exemptions

I wrote an article for News24 in which I calculated the true cost of not adjusting the various tax exemptions – and the figures are quite astounding.

For example, if adjusted for inflation, the annual R40 000 exclusion for capital gains tax should be R60 000. The R300 000 capital gains tax exclusion on a late estate should be R550 000 and the R3.5 million exemption for estate duty should be increased to a massive R8 million.

The lifetime limit for contributions to your tax-free savings accounts should be increased to R820 000 while the annual contribution should be  increased to R46 000.

I spoke to an official at National Treasury who told me there is a strong feeling that any relief to investors would be seen as an anti-poor measure, and would have been a hard sell in view of the increase in the VAT rate.

However, he conceded that adjustments to these exemptions were long overdue. We can only hope that this is addressed next year, but with rumours circulating that there could be wealth taxes in the pipeline, I wouldn’t hold my breath.