Inflation could reduce disposable income if tax brackets aren’t changed to provide relief. As South Africa heads into the National Budget on February 25, a familiar phrase is again surfacing in economic commentary: bracket creep. Tax specialists are warning that bracket creep may once again be one of the National Treasury’s quieter revenue tools.
Kristof Kruger, senior fixed income trader at Prescient Securities, said the pressure is already visible. “Bracket creep is already putting pressure on households. If tax brackets aren’t adjusted for inflation, people end up paying more tax in real terms, even though their purchasing power hasn’t improved,” he said.
Unlike an explicit tax hike,bracket creep works subtly. Employees may receive an annual increase, yet take-home pay fails to stretch further. Lance Collop, CA (SA) and Chartered Tax Adviser, said inflation itself becomes the mechanism.
[paywall]
“The government’s most effective tool for raising revenue isn’t a new tax law; it’s inflation,” he said. Collop explained that if a worker receives, for example, a 5% inflation-linked salary increase but tax brackets remain largely unchanged, part of that increase is absorbed by higher tax. “You earn more on paper, but you take home less in real terms,” he said.
Collop added that fiscal drag – another term for bracket creep – allows the government to collect additional revenue without formally announcing a tax increase. “It is silent, invisible, and incredibly effective,” he said. Samuel Seeff, chairman of the Seeff Property Group, said the National Budget should prioritise growth rather than simply updating the country’s finances. Seeff called for decisive measures to unlock economic expansion and argued that households and businesses need breathing room.
[/paywall]
All Zim News – Bringing you the latest news and updates.
