Budget 2014

Citadel commentary on Gordhan's speech


The 2014 Budget Speech delivered by Finance Minister Pravin Gordhan underscored Government’s commitment to growth, yet emphasised the need for fiscal discipline. The cautious tone of the Budget promotes stability and underpins certainty.

This is the view of Maarten Ackerman, from Citadel Wealth Management, who says that while the outlook is predictably optimistic in an election year, the growth, revenue and budget deficit assumptions are reasonable.

“The Government yesterday confirmed its focus on managing costs, creating jobs and improving expenditure. Yet, to reach the country’s optimal growth targets will require significant fiscal discipline. From a tax perspective, while there was no changes to the taxation of trusts, Capital Gains Tax or Estate Duty, and the changes in Income Tax brackets were marginal, a cautionary reminder was made that a more comprehensive tax review is underway.

“It was mentioned that the taxation of endowments held within a life wrapper’ by individuals may be the subject of potential changes. If this were to happen, this could end a favourable tax treatment for high tax-paying individuals investing in endowments. There was also a mention that the favourable tax treatment of investments held in certain offshore life wrapper investments may be subject to more scrutiny,” explains Madeleine Schubert.

In addition, Madeleine Schubert says that the Income Tax Act provides a tax incentive for donations to qualifying public-benefit organisations, including philanthropic foundations.

“Scrapping the part of the Income Tax Act that requires philanthropic foundations to distribute 75% of a donation in 12 months is positive news for donor-advised funds. This means that firms who invest in this type of fund will be able to build up an endowment, allowing a sustainable growth of charities on a longer-term basis, rather than ensuring that donations are spent within a limited time, allowing foundations be run on a more financially sustainable basis.”

John Kennedy says that while the Budget did not address progress on the retirement reforms, it did confirm its commitment to ensuring that the requirements around the preservation of retirement fund benefits, income options on retirement and the alignment of provident and pension preservation fund rules, would be a priority. It is worth noting that the tax free portion on the retirement fund has changed to R500, 000.

Vanessa Hofmeyr, Fund Manager, also agrees that Government’s commitment to African expansion and investment is positive.

“The Budget made a specific mention of a number of areas that government is focusing on to encourage investment in Africa. This includes measures that will make South Africa a favourable destination as a springboard into Africa,” concludes Hofmeyr.


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Issue 72