How Government Will Tax More Low Income Earners

Whoever wrote this article for Times LIVE did a decent job of pointing out how Gordhan is increasing taxes by stealth on the lowest income tax bracket:

The Treasury would have to find the money somewhere and many expected Gordhan to increase the marginal tax rate for the highest-income earners to 42% from 40%. Some even feared that VAT would be increased.

Instead, Gordhan announced “personal income-tax relief of R7-billion” and a medical tax credit and adjustment of R385-million.

But a closer look at the Budget shows tax brackets have been increased by less than the previous year, by less than inflation, and by much less than the wage increases in the past year.

The reason for increasing the thresholds annually is to avoid “bracket creep”, which would drop many taxpayers who receive wage and salary increases into a higher tax bracket and take a large part of their gains for the fiscus.

By adjusting the thresholds less, Gordhan has ensured that many people (earning different incomes) could now pay more tax, especially if they receive high pay increases.

In his previous budget, Gordhan pushed up the amount at which the lowest category of taxpayers (those earning R150000 a year) would start by R10000 (6.7%); this time around he adjusted it by only R5600 (3.5%).

The average inflation rate was 5.6% last year. So low-income earners who would not have been taxed if the adjustment kept track with inflation will now be dragged into the tax net.

By using “bracket creep” and a higher fuel levy Gordhan will silently squeeze the maximum out of existing taxpayers and consumers.

The increase of 23c a litre on the fuel levy is in addition to yet another price hike next week. After rising by 41c a litre three weeks ago, the price of petrol is to increase by more than 80c.