The Budget’s Nuggets for Investors

While positive generally for South African consumers, last week’s Budget Speech by Finance Minister Enoch Godongwana offered definite advantages and incentives for investors. It might be wise, therefore, to arrange a chat with your financial adviser on how to tweak your financial plan accordingly.

The Minister’s speech broadly helped local investors in two ways: by providing stimulus to the economy and by boosting incentives to save.

Effect on investment markets

Izak Odendaal, Investment Strategist at Old Mutual, says the Budget was good for the  markets, given its emphasis on economic growth and continued fiscal consolidation. “The debt trajectory remains on a stabilising path, and the growth outlook is gradually improving, despite ongoing domestic and global risks. [Credit] ratings upgrades are unlikely to follow immediately but remain possible over the next 12 to 18 months as more concrete evidence of fiscal discipline and reform momentum emerges,” he says.

Victor Muphunga, Head of Research at Private Clients, Old Mutual, says the revenue overrun enabled by the commodities boom allowed Treasury to do two things that matter for markets: lower debt servicing costs while avoiding previously mooted tax hikes.

“For investors, this will be viewed positively. Lower government borrowing reduces the interest burden over time, increasing the likelihood that more fiscal resources can be directed to productive spending, especially infrastructure. If that spending is executed well, it can lift the economy’s growth profile, crowd in private fixed investment (a persistent weak spot), and ultimately support employment and consumption.

“A credible path to debt stabilisation supports local bonds and justifies the currency strength we have seen over the last year. From an equity market perspective, we believe the rerating we’ve seen in our local equity market has room to continue and to spill over into more consumer-focused parts of the market,” Muphunga says.

For property owners with mortgage bonds, Jurgen Eckmann, Wealth Manager at Consult by Momentum Debt, says the government’s efforts at debt stabilisation will be positive for your bond. “Gross debt is projected to peak and gradually decline. The deficit is narrowing. Debt-service costs are easing. For consumers, this improves the long-term interest rate outlook. When the government borrows less, it competes less aggressively for capital, and over time, this supports lower borrowing costs and improved asset valuations,” Eckmann says.

Tax relief and incentives to save

Inflation-related adjustments to the personal income tax brackets will prevent “bracket creep” and raise the primary, secondary and tertiary rebates. There have been no inflation-related adjustments since the 2023/24 tax year.

Several other tax-related measures boost incentives to save. Carla Rossouw, head of the tax team at Allan Gray, says the Minister acknowledged that the national savings rate was far below the levels needed to create generational wealth. “To encourage South Africans to invest more, the annual limit for tax-free investment accounts will increase from R36 000 to R46 000 per year – although there was no mention at this stage of the lifetime limit increasing beyond R500 000. Meanwhile, the annual maximum tax-deductible limit for retirement fund contributions will be raised from R350 000 to R430 000 – a boost to retirement investors.

“In positive news for local investors looking to diversify offshore, the single discretionary allowance for individuals has been increased from R1 million to R2 million per calendar year,” Rossouw says.

Other tax adjustments to benefit investors include:

• The annual capital gains tax exclusion will increase from R40 000 to R50 000, and on death from R300 000 to R440 000. 

• The annual donations tax exemption will increase from R100 000 to R150 000 annually.

For maximum benefit, act now

Therese Grobler, Head of Wealth Management at Momentum Financial Planning, says a positive or stable Budget should not be interpreted as a signal that no action is required.

“The worst thing you can do is assume that because the Budget sounds good, you do not need to revisit your financial life,” she says. “Whether you feel it applies to you or not, it does. Over time, even small changes can knock your financial planning off course.”

Grobler says the increase in the tax-free savings limit and the retirement fund deduction cap creates additional capacity for long-term wealth building. “Now is the time to revisit your financial plan and make sure you are fully using the new limits. It is not just about earning more. It is about structuring what you already earn in the most effective way,” she says.