Ronald King, Head: Public Policy & Regulatory Affairs, PSG Financial Services

Firstly, we agree with the Actuarial Society of South Africa that providing access to a portion of the funds, while requiring the remainder to stay invested, will result in a bigger portion of the actual fund available by the time you reach retirement. The issue is that when people need money, they resign to access the full retirement fund and end up using all of it which puts them in a worse position, with no funds left to access.

Secondly, in the past, many investors would've had to be persuaded to invest in retirement products, whereas now that there’s a portion accessible, it makes the product more attractive.

We do, however, foresee a lot of additional admin on the bigger funds to manage the initial rush to access the fund seeding, as well as the annual management of withdrawals,  which might have an impact on the cost of some of the funds.  There’s also still uncertainty on exactly how the fixed benefit fund will manage this transition, but this is yet to unfold.

In conclusion, PSG is widely supportive of the two-pot retirement system and believes it will have a positive effect in offering flexibility for fund members to access their retirement savings in case of emergencies.

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Budget 2024 tax changes vs household finances – Succeeding in the face of new tax landscape

Comments from Metropolitan Economist Mashudu Lavhengwa

Although it was a good idea to listen intently to Finance Minster Enoch Godongwana deliver the 2024 Budget Address, for many South Africans, this jargon-filled speech went way over their heads. Who will explain to them how various tax increases impact their personal finances?

Metropolitan Economist Mashudu Lavhengwa emphasises that while the intricacies of tax policy may seem daunting, they hold profound implications for our wallets and lifestyles.

“From income tax adjustments to changes in consumption taxes, the decisions made regarding tax policy have far-reaching consequences that can affect households in various ways,” says Lavhengwa.

In a society where financial literacy is paramount, understanding the potential implications of tax hikes is essential for making informed financial decisions.

Metropolitan invites you to engage in an illuminating discussion with Mashudu as she delves into the following key points:

• Understanding Tax Policy Changes: Explore the potential shifts in tax rates and structures, gaining insights into how these adjustments could impact your disposable income and overall financial situation.
• Assessing Personal Finances: Learn how to evaluate your current financial standing considering proposed tax increases, identifying areas where adjustments may be necessary to adapt to changing tax burdens.
• Planning for the Future: Discover strategies for proactive financial planning in anticipation of potential tax hikes, including optimising tax deductions, exploring tax-efficient investment options, and safeguarding against unexpected tax liabilities.
• Navigating Economic Uncertainty: Gain insights into how changes in tax policy may interact with broader economic trends and learn how to position yourself financially to weather any resulting challenges or opportunities.
• Empowering Financial wellbeing: Arm yourself with the knowledge and tools needed to make informed decisions in the face of evolving tax landscapes, ensuring that you can protect and enhance your financial wellbeing in any economic environment.

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Fiscal discipline, R150bn windfall to reduce SA’s debt burden

By Elna Moolman, Head: SA macroeconomic research at Standard Bank South Africa

The national budget indeed favoured fiscal continuity and consolidation (over any pre-election populist decisions), as anticipated, and in contrast with the consensus forecasts for sustained and significant fiscal deterioration.

Government intends to make a larger, immediate withdrawal from the gold and foreign exchange contingency reserve account (GFECRA) than generally expected. This is essentially the unrealised profits on SA’s gold and foreign exchange reserves, typically from rand depreciation over time. It plans to use R100 billion from the GFECRA in FY24/25, and R25 billion in each of FY25/26 and FY26/27.

This is reducing government’s borrowing requirement and therefore its debt burden. However, it was disappointing that only guiding principles on how the funds will be used were provided in the Budget, with (only) an undertaking that it will eventually be “formalised through legislation”. The guiding principles in the Budget are pragmatic, but we would’ve preferred the GFECRA only being used once its use is legislated, to ensure that future use will remain prudent.

Nevertheless, despite this disappointment (of using GFECRA before its longer-term use has been legislated) and persistent risks (to both the near-term and medium-term spending and revenue forecasts), the fiscal prognosis is at least somewhat better than investors expected. The Budget confirms government’s commitment to fiscal consolidation. Therefore, financial markets are likely to react positively to the Budget. While there might be a strong initial response to better-than-expected fiscal and funding metrics, this may partly unwind as investor concern about the aforementioned factors (upside spending risks and downside revenue risks) persists.

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Energy and carbon measures a positive but long-term step

Mark Lacey, Head of Global resources at global investment manager, Schroders

The measures taken by the finance minister are sensible, but impact South Africa’s grid system in the long term, not the short term.

For example, increasing the maximum size of solar development from 15GW to 30GW, will no doubt improve project returns for developers, as they benefit from economies of scale - and the better returns will increase the deployment growth rate.

This policy very well timed given the cost of solar has collapsed to all-time lows, which again improves overall project returns.

The carbon tax is also a positive move in the right direction and is consistent with the direction of carbon taxes globally. But the overall level of carbon taxes (at $10/tonne) is extremely low compared to other countries globally (see table above) and is unlikely to significantly change corporate investment rates in the short term.

For context Norway’s carbon tax will reach $220/tonne in 2030. This has a massive financial impact on high emitting industries and is already promoting decarbonisation.

So again, to reiterate, we would view this as a positive move, that will not instantly address South Africa’s grid challenges, but over the next few years should start to mitigate the impact of outages going forward.

Image: Carbon taxes in 2023 by country

Source: Statista

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