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Wealth by stealth as Manuel goes for cookie-jar
The Budget unveiled by Trevor Manuel this week was decidedly sneaky, writes LEIGH ROBERTS
His triumph: a levy on the windfall gains due to Old Mutual and Sanlam policyholders from the demutualisation of the two giant assurers. At best, the levy has been called an opportunistic tax, at worst it is branded what it actually is, a wealth levy. With hindsight, taxpayers should not have been surprised at Manuel's slipping a wild card into his Budget. After all, this is the man who, when he first took office, attempted war with the world's financial bosses with his remark: "What is this amorphous being called the market?" When Sanlam and Old Mutual convert to public companies, Manuel will swipe 2.5% of their free reserves to satisfy his levy.
The 2.5% charge reduces the value of the free shares due to policyholders of the two assurers. Policyholders will receive free shares in the listed companies in acknowledgement of their existing ownership of their assurer. Sanlam has 2.5-million policyholders and Old Mutual 4-million (both local and foreign). This week the public reaction of the two assurers was somewhat subdued. In statements both assurers stressed that the tax would not affect the benefits to their policyholders, and that they supported the aim of the levy which is to finance a job-creation enterprise, the Umsobomvu fund. Old Mutual estimates the effect of the levy on them will at most be R1 in every R40 of free reserves. Chagrined policyholders can take heart that next year is election time, and on a broader economic level, that their money is intended to go to the worthy cause of job creation. This year's Budget held another shock: a huge hike, from 17% to 25%, in the taxation of income earned by retirement funds. The long-term impact of this charge is that you will have less money to retire on, because the annual growth in your pension, provident or retirement annuity fund will be sliced by the higher tax take (see page 19). Significantly, the higher tax could have a greater negative long-term impact on the lower-income group, rather than on the upper-income group, because the 25% tax rate may encourage them to opt out of the corporate retirement funding system and rely on state coffers for their pensions. With personal income tax, Manuel neatly reduced the tax rates on all taxpayers, especially those in the lower- and middle-income groups. But don't rejoice if you are a salary earner with a tax structured package - some fringe benefits took a beating. The most widespread perk to be hit is medical aid contributions where the employer pays the total contribution (that is, both the employer's and employee's share). The majority of medical aid funds operate on this basis as it gives the employee a tax break on his fund contributions which he is otherwise unlikely to get (see page 22). The popular residential accommodation allowance was also targeted but with a one-year delay (see page 22), and employees will now pay more tax on travel allowances (see page 24). As for the sin taxes, it definitely was an "election" budget: sorghum beer escaped the annual blow dealt to other alcoholic drinks and cigarettes. The good news was on exchange controls. The ceiling on the remaining allowances to individuals was raised significantly, with the effect that to all but the very wealthy, exchange control regulations are a thing of the past. On that note, Manuel deserves to be applauded, but otherwise it generally was a decidedly stealthy Budget.
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Estimates are that the combined take will net Manuel R1-billion.