South African Government Gains R58 Billion Through Bracket Creep Instead of Tax Hikes

The subtle nuances of fiscal policy have enabled the South African government to bolster tax revenue significantly. Lesedi Seforo of the South African Institute of Chartered Accountants (SAICA) highlighted on 702's The Money Show a rather inconspicuous yet impactful strategy: bracket creep. This has been the government's approach to circumvent direct tax increases while still managing to enhance revenue by a notable R58 billion in the medium term.

Finance Minister Enoch Godongwana's medium-term report painted a picture of financial strain, with projections underscoring a decrease in tax collections compared to previous estimates. Minister Godongwana emphasized the nation’s need to adapt to leaner times, invoking potential fiscal cutbacks and decisions, much sterner than before. Edward Kieswetter, the South African Revenue Service Commissioner, elaborated on the disappointing tax figures, attributing the shortfall to overly optimistic projections on personal income tax, fuel levy income, and import-related taxes.

This form of tax collection through non-adjustment of tax brackets takes advantage of inflation to move taxpayers into higher tax brackets, increasing their tax liabilities without an actual hike in the tax rate itself. While taxpayers receive no relief from the creeping burden, the government avoids the backlash typically associated with raising taxes.

The last several years have proven challenging for the South African economy, which, coupled with the lingering aftermath of the state capture scandal and lack of investment in infrastructure, has resulted in underwhelming economic performance and thus, tax revenues. This underperformance, demonstrated by a 2.6% growth rate in tax collections—below the rate of inflation—has left the National Treasury grappling with a significant deficit, prompting the intended boost in tax revenue for the approaching fiscal year.

Pieter Koekemoer of Coronation Fund Managers speaks to the history of practical tax relief in the context of a healthier economic backdrop, and how the scenario has drastically changed post the 2014/15 national budget. Now, amid a weakened fiscal framework, the government has resorted to bracket creep as its method of choice to keep the public coffers buoyant, a fact that Koekemoer underlines as having increasingly burdened South Africans over time.

Revelations from Seforo shed light on the quiet yet effective measures that have been used to address the fiscal challenges without stoking public uproar typically associated with tax hikes. Nonetheless, this invisible inflation tax through bracket creep is something that more informed citizens are becoming aware of as they watch their tax contributions swell over the years.