What the budget speech means for the consumer

Every year, when our Finance Minister delivers the annual budget speech, we listen to find out how it will affect our pockets in the short term . . . and how much more we will pay for petrol and beer!

While these are good reasons to pay attention to it, there are many more components to the budget speech that we need to consider. Karin Muller, Head of Sanlam Growth Market Solutions, shares some insights.

When we look at the budget speech, there are two areas to which we need to pay attention: The ‘income’ section, which talks to where our government gets its money from, and the ‘expenses’ section, which relates to what government will spend this money on.

The budget speech, therefore, deals with income and expenses over the next year, but also talks to medium-term spending, as well as some very long-term implications for the financial situation of consumers. Some of the longer-term implications relate to certain benefits, like medical and retirement benefits.

How, then, will the budget speech affect our pockets/wallets in the short term?

Impact on different taxes

The changes to the different tax components will affect how much you receive of your salary every month (income tax and deductions), how much you pay for certain things (VAT and sin taxes), and how much you need to pay when you sell certain assets (capital gains tax).

Income tax

Minister Gordhan spoke about personal income tax relief of R9,5 billion. How much of this will reach your pocket depends on how much you earn.  The bulk of this benefit will go to lower income earners. For example, someone earning R65 000 will pay R260 tax compared to R945 in the previous years – a saving of 73%, while someone that earns R250 000 would pay R2 135 less tax – a saving of 5,1%.

The primary rebate for people over the ages of 65 and 75 has also increased, which means that these tax payers will have a little extra money in their pockets.

This relief is intended to combat “bracket creep”.  Bracket creep refers to a situation where you receive a salary increase (which should help you keep up with increases in living expenses) and where this increase then pushes you into a higher tax bracket. When the Minister, therefore, slightly adjusts the different income brackets, he does this to make sure that we do not pay more tax because of inflation.

Medical deductions converted to medical credits

The change from medical deductions to medical credits was previously communicated by the Minister. Now it will be implemented from 1 March 2012.

There are different ways in which the government can provide us with tax relief. One way is when it grants taxpayers a deduction. This means that we are able to deduct certain expenses from our income and pay tax on the remainder. For high income earners who pay tax at a higher rate, this basically means that if you deduct R100 from your income and you pay tax at a rate of 40%, you will get tax relief of R40. Someone who pays tax at a rate of 18%, will only get tax relief of R18.

A move to tax credits means that everyone gets the same tax relief, and it means that higher income earners will not benefit more from the same medical expenses.

Sin taxes

This is probably the most talked about item every year in the budget speech – probably because it is one of the most visible areas of our everyday lives.

As has been the pattern over the last number of years, this year once again sees an increase in most of the sin taxes. The duties on tobacco products will increase by between 5% and 8%. A 750 ml bottle of spirits will cost you R6 more (20% increase in the duty) and a 340 ml can of beer will cost 9 cents more (a 10% increase in the duty).

Last year the Minister proposed a gambling tax. How to impose such a tax was, however, problematic, but this budget has simplified the tax to a 1% levy on gross gambling revenue effective from 1 April 2013 – this will include the national lottery.

Capital gains tax

The inclusion rate for individuals and special trusts increases from 25% to 33,3%. But let’s consider how capital gains tax works in full:

We pay capital gains tax on assets when we sell an asset and we have made a capital gain. In a very simple example, if you bought a flat to rent out for R500 000 and sell it for R600 000 then you have made a capital gain of R100 000.

The tax that you pay on this R100 000 depends on your income tax bracket. So if your marginal rate is 40% it means that you would previously have paid tax on 25% or a quarter of the gain at 40%, i.e. an effective rate of 10%. Now you will pay on 33,3% or a third of the gain at that 40% i.e. 13,3% (instead of 10%).

To limit the impact on middle-income households, there are certain exemptions.  The annual general exclusion of R20 000 has been increased to R30 000.

Also, if the asset that you are selling is your primary residence, you do not have to pay capital gains tax on the first R2 million gain. Previously this was R1,5 million.

Dividend withholding tax

An unexpected surprise was the increase in the rate from 10% to 15% when this new tax is implemented on 1 April 2012 to replace secondary tax on companies that was levied at 10%.  Although this tax is not applicable to retirement funds, individuals’ savings in equity investments will result in slightly lower dividend returns.

Fuel levy

Petrol and diesel will cost you 28c more for every litre of petrol or diesel you put into your car. The fuel levy goes up with 20c and you will contribute an additional 8c per litre to the Road Accident Fund.

Tolling of roads

Government noted the outcry over the tolling of roads in Gauteng and the Minister made reference to lower tolls for public transport (no tolls for taxis) and frequent users, as well as a monthly cap for frequent users.

How will the 2012 budget affect us over the longer term?

Regarding the long-term effects of the budget we may consider the benefits we receive from government in the context of our citizenship.

National Health Insurance

Healthcare is an important benefit provided by the state to its citizens and in the budget the Minister commented on the improvement to the health infrastructure. More money is to be spent on nursing colleges and the rebuilding of 5 tertiary training hospitals, to the benefit of all South Africans.

In the context of National Health Insurance (NHI), the Minister spoke about some of the interim plans to build towards NHI.

He shared no new information relating to NHI funding, and the expectation therefore remains that this will be funded from an increase in VAT, payroll taxes of employers or additional tax on individuals, or a combination of these. These proposals will only be published later in the year, but what it boils down to is that through some or other mechanism individuals will contribute more in total taxes to help fund the NHI system.

Encouraging household savings

South Africans are not good at saving. We consume all our money and do not save enough for tomorrow. Not only do we need South Africans to save more to provide for their own future and their families, but the economy also needs us to save.

With the high debt levels and the low savings levels we, as a nation, are consuming today what we have not yet earned tomorrow.

Currently there are not enough incentives to save and in the budget speech the Minister proposed new savings mechanisms to help us save: As an investor in one of these products you will not pay tax on the income you earn in the product – whether it be interest, capital gains or dividends – and you will not be taxed when you withdraw from the product. This is still a proposal and a discussion document will be published in May 2012, and the product will be available from April 2014. A mechanism which enables you to save up to R30 000 per year up to a cumulative lifetime limit of R500 000, without paying tax on the returns you earn, will surely enable many South Africans to make their savings work harder!

Retirement reform

During last year’s budget speech the Minister already demonstrated the intention to simplify the retirement environment. For consumers, it means less hassle to understand all the complexities and differences between pension, provident and retirement funds.

One of these simplification measures with regard to the retirement space is to change the workings of the tax system between the different retirement systems.

It is proposed that these changes be implemented with effect from 1 March 2014.  If you’re under 45 years of age, you can deduct up to 22,5% of your income if you contribute this towards your retirement –irrespective of whether you are saving in a pension or provident fund, and irrespective of whether you or your employer makes the contribution. An encouraging aspect is that, for people 45 years of age and older, there is now an allowance for a greater deduction of up to 27,5% of their income. This provides for people who are closer to retirement and need to contribute more, and who may not have contributed enough in their earlier working lives. Many South Africans leave saving for retirement too late and this additional amount will assist South Africans to make up the shortfall.

These deductions will, however, be limited to a maximum annual deduction of R250 000 for people younger than 45 and R300 000 for people older than 45.

This means that if you are younger than 45 years, earn more than R1,1 million income and contribute at 22,5%, you will not be able to deduct your total contribution to the extent that it exceeds the cap of R250 000.

There are further proposals in the budget speech around retirement reform to assist individuals to be able to receive an adequate income in retirement, however these proposals still need to be finalised. A major retirement fund issue addressed in the budget speech centres on funds preservation. Minister Gordhan suggests that we consider ways to limit people’s ability to withdraw money from their retirement savings.

His concern, essentially, is that people are inclined to withdraw their retirement savings before they actually reach retirement, with the result that – when they do reach retirement – they don’t have sufficient savings to provide them with an adequate income during their retirement years.

Findings in the Sanlam 2011 Benchmark survey showed that 20% of people indicate that they withdraw their retirement savings when they leave a job and move to another employer. The concern here is that, in this context, 72% of people used their retirement savings to settle debt and 29% used it to provide for living expenses.

Retirement reform will affect not only how we all save for retirement, but also the income we will receive during retirement. Proposals will be made during this year and changes will only follow later.

Partnership was a strong theme of the 2012 budget and the Minister made the point repeatedly that, in order for South Africa to effectively address inequality and poverty, a partnership between government and the private sector was critical.

Source: www.justmoney.co.za

Struggling to decide what training to send your staff on?

Overwhelmed by the hundreds of courses on the market and unsure which would best benefit your company? With the wide variety of courses on offer at Compuscan Academy selecting one that is best suited to your staff can be unnerving. To make the process easier it is recommended that you implement the following tools and instruments to identify the courses that will best suite your individual requirements. Before you can decide which skills shortages you need to address you need to conduct a skills needs analyses to identify learning and talent development needs. This can be done via a formal or informal assessment of prevailing skills levels, attitudes, knowledge and any current or anticipated gaps to inform decisions regarding the learning provisions of individuals and teams. The aim of this process is the production of a plan for the organisation to ensure there is sufficient capability to sustain business performance.

A skills needs analysis can be conducted by an in-house trainer or by a consultant. The process is systematic and based on specific information-gathering techniques. Ultimately, there are several ways to determine which areas require attention. There is, however, no short cut formula to carrying out the process. Each organisation will require a different method of collecting and organising information to assess their needs.

These techniques can contain any of the following:

1. Observation

   By observing an employee’s work you can determine where his/her skills lack and identify where they require training. It is advised that you develop a checklist to remind you what to look out for. Ideally, you should identify the employee’s strengths that can be worked on and their weaknesses that need to be overcome.

2. Interviews

   With interviews you can discuss key areas that you believe to be problematic and gather the opinion of several individuals to determine a trend or widespread perception.

3. Questionnaires

   The most positive aspect of questionnaires is that they allow you to gather information from every person from whom you require feedback in a manner that is not as time consuming as face-to-face interviews. It also allows for flexibility and anonymity – so employees can answer questions openly and honestly in their own time.

4. Job Outlines

   Conduct a job analysis to determine all the functions of a particular role – this will provide a framework to assess the employee against. Once you have a detailed job description you can match up training with the expectations of the position.

5. Performance Review

   Annual performance reviews of an individual should be seen as an opportunity to identify areas for improvement. These reviews provide a time for both the manager and employee to discuss the causes for problems in performance.

6. Company Performance Review

   For certain job functions one can immediately determine areas which require training by looking at the overall performance of a department or the company. A sales team that gets many leads but fails to close as many sales can be an indication of a need for sales training or if the amount of money recovered in debt recovery is substantially less than that owed there may be shortage of experienced debt recovery agents.

7. Industry Trends

   To ensure your company is kept up-to-date on industry developments and the latest training available it is advised that you monitor seminars and workshops being presented in your field. Also make a note of which courses seem to be the most popular amongst your competitors and within your industry so you can determine if you are losing your competitive edge.

   For example, it is no surprise that the most popular course amongst Compuscan Academy’s learners is the All-in-One Credit Course. Regardless of your position – if you are in the credit industry this course is essential. The course itself is a combination of accredited skills programmes and presents employees with the key skills they need to work in the credit environment. Another exceptionally popular course at Compuscan Academy is Credit Control and Collections. This one-day course covers every aspect of efficient loans collection from how to develop a client loan repayment management system to how to respond appropriately to problem loans.

Once you have analysed which skills you need to invest in start looking for a training provider that can customise a course especially suited to target these needs. Compuscan Academy specialises in customised courses and can help you to comprehensively meet all the needs uncovered in your skills assessment.

Please feel free to look at the list of courses Compuscan Academy has on offer on our website www.compuscanacademy.co.za or call us on 021 888 6000 or email info@compuscanacademy.co.za.

Budget speech must address NHI funding concerns

One of the much anticipated elements of this week’s National Budget speech is how the government plans to fund its National Health Insurance initiative, particularly with this year’s allocation already showing a shortfall from what was originally announced.

This is according to Clayton Samsodien, Managing Director of Genesis Capital Group’s health care subsidiary – Genesis Healthcare Consultants – who says the NHI Green paper made provision for R125 million in 2012, whereas the current budget has only made provision for R121.5 million. “Considering we are only at the beginning of the anticipated 14-year period for implementing NHI, it is extremely concerning that we are already seeing the budget for the project being cut.”

“We hope that the Finance Minister’s speech this week will provide further clarity on the funding of the NHI model and address any concerns about the current shortfall. This is a huge, but welcome, undertaking by the government; however it is crucial that its implementation is not derailed by a lack of appropriate funding right from the start.”

A huge concern is the financial status of certain provisional Governments that have not been paying healthcare suppliers resulting in withdrawal of essential services in some instances. No announcements have been made in respect of the accredited facilities either. The scenario at state facilities is not improving; most recently new borns have died as a result of inefficiencies in the system.

Samsodien says South Africa already spends 8.3% of its GDP on healthcare, which is in line with spending by many other countries in the world, though often with less positive results. “The money appears to be available but how it is spent is crucial in determining whether this initiative will work in the long term. We need to understand whether pouring more money into a system that does not have sufficient resources will yield a meaningful result, or whether in fact we need to invest in correcting the poor management of facilities and eradicating corruption.”

He says South Africa has had some amazing success stories with regards to its healthcare including all public health facilities now offering services to pregnant women, including HIV testing. “A landmark achievement for our country is the 50% reduction in the transmission of HIV from mothers to children between 2008 and 2010.”

Samsodien notes that a further concern is that while the deadline for public submissions was extended to 31 December 2011, the proposed pilot implementation date earmarked for April 2012 was not extended by the same period. “This is extremely concerning as government still has to respond to a plethora of submissions by public and other role players. In order for NHI to be truly successful, we need to have a buy-in from all stakeholders, particularly the private healthcare industry. If the implementation of NHI is rushed through without taking all concerns into consideration we risk the project being doomed before it has started.”

“Talk of raising VAT in order to help fund NHI has been met with some fierce resistance; however, increasing taxes by reducing rebates or increasing tax rates may simply be unsustainable due to the country’s small tax base. Despite these concerns, however, Government intends to raise the tax base by 3% of GDP to pay for NHI.

“With almost two months to go until NHI is implemented, government is unnervingly silent and appears fixed on ploughing ahead with its implementation without consideration to sound arguments from public and industry experts,” concludes Samsodien.

a quick thought…

Credit decisions should not be based on short term performance. We need to maintain a coherent balance with sales and credit management for long term sustainability.

Why compromise when you can customise?

No two businesses are created equal and as a result cookie-cutter one-size-fits-all training programmes often don’t cater for your business’ unique needs or align with your organisational culture. Instead of investing in programmes where 50% of the content is not relevant to your staff or your business why not invest in a customised programme which targets your specific needs and addresses the unique skills shortages and challenges your company faces? You shouldn’t have to compromise on a training programme that is an almost fit or that “kind of” meets your requirements. There is another solution – customise! Customised training solutions are developed in line with your business’ requirements and according to problems identified by an in-depth skills needs analysis. This ensures that every aspect of the programme is relevant to your company and that staff will not find themselves attending a programme which they cannot apply in their own workplace.

The benefits of implementing a customised training programme rather than a generic course are vast and as such it is often a more desired option for the following reasons:

• Improved Skills Levels: At the start of the process a training needs assessment is conducted. The training is then built to address the specific requirements detected. The content and exercises bridge the gap from the current state to the desired state where key learning outcomes can be measured. The attendees will then be able to transfer what they have learned directly to the workplace resulting in improved productivity and performance.

• Practical Application: Training is only truly effective when a learner can identify with what they are being taught and apply it back to their own situation or workplace. In a customised training programme case studies, scenarios, examples and exercises are pertinent and applicable to the learners’ actual work environment which helps them to clearly understand how the theory can be practically applied.

• Flexibility and Convenience: Customised training programmes are extremely flexible and their components are determined solely by what you as the client need and expect from it. Time, subject matter, audience, location and duration can all be tailored to best meet the needs of the group for which the training is being conducted.

• Operational Solutions: Often customised training is the perfect medium to look for solutions to problems the company is facing. Practical tools, methodologies and applications that arise from the training can be taken back to the workplace to be incorporated into policies and procedures or used to train new staff members. An added benefit of customised training is that the material is the intellectual property of the client, not the training facility.

• Better Return on Investment: Although there are costs involved with the original creation of the customised course these are outweighed by the cost of having your staff attend an all-day course where only a few hours were relevant to them.

• Strengthened Teams: A sense of teamwork is encouraged through group brainstorming exercises. As the content is customised to the company’s specific needs the team is strengthened through their combined effort to find solutions to problems the company is facing.

• Greater Sense of Achievement: Staff will feel motivated and accomplished on completion of the course as they will see the value that the course has offered them. If, however, they attend a course which is not applicable to their role or which they feel cannot be practically applied – they may feel dejected by the time they have wasted.

At Compuscan Academy we understand the value and benefits of customised training and undertake each project with determination and commitment. Despite the fact that our specialities lie within the credit and micro-lending arena – we can assist in developing a course on almost any subject by employing the services of a subject matter expert.

Recently Compuscan Academy was contracted by several important players in the industry to customise training programmes for their staff.

The customisation process is easy and hassle free. Firstly you will meet with a course developer to determine your specific needs. We design and develop training solutions in line with your business’ requirements and spend time in your organisation to ensure that we understand your workplace environment, terminology and training philosophy.

Once an analysis of your needs has been conducted you will be presented with a proposal that includes specifics about program delivery, dates and times of training, detailed training outline, cost and contact information. If you have any changes or concerns regarding the proposal – these can be amended until you are satisfied with the final draft. Nothing is set in stone and we will do our utmost to cater to all of your requirements.

For more information on our customised training programmes please feel free to contact Compuscan Academy on 021 888 6000 or email   info@compuscanacademy.co.za. You can also visit our website www.compuscanacademy.co.za to learn more about our products and services.

Want to know the stability of your credit applicant’s employer?

As a credit provider you are presented with two credit applicants. Their account history, financial position, affordability and personal details virtually mirror one another. But imagine if you could view the stability of their employer, imagine if you knew which businesses their employer had links to – would it influence your decision on who to grant credit to?

Applicant X works for a small company whose name you have never heard of, they rent the building they operate from, they do not own property, the owners both have a poor credit score, each has a judgement against their name and the company’s payment history and Business Credit Score reflects that they are high risk. The company’s auditors recently made headlines for fraud.

Applicant Y also works for a small company, but the company owns three properties, have reasonable bonds on each and have never missed a payment. Several of the directors of Applicant Y’s company also sit on the board of other influential businesses, none have judgements against them and all have excellent credit scores. The company’s auditors are one of the big four.

If you were granting each of the above applicants a substantial loan and their ability to meet the repayments rested solely on them receiving a regular and stable income – which would you grant credit to?

Being privy to the financial position of a company, the creditworthiness of its directors and the connections it has to other businesses could greatly influence your decision. Likewise, when granting credit to a business – the above information could prove vital in your decision as to whether or not they are in stable position to meet the repayments.

But the information above’s uses far exceed these. For example you recently closed a deal with a business you have long had your eye on. You now also discover that a director of this company sits on the board of another company who you believe to be one of your most promising potential customers. This fact alone could prove highly useful when trying to open avenues of communication with the potential client.

When considering a supplier for a long-term deal – would the company’s financial position and that of its owners influence your decision on who to choose? If the owner had judgements or administration orders against their name or did not have any assets or financial security – would you risk placing a substantial order with them?

Ultimately, insightful business data can revolutionise the way in which you target potential customers and make decisions. It can protect you from loss and ensure that you are selling, purchasing, partnering and marketing to and from the correct individuals and businesses.

Bizinform, a joint venture between Compuscan and Lightstone is a business knowledge solutions provider which can provide you with the above business data and help you turn business information into insight that will drive your decisions and give you a competitive edge.

To find out more about Bizinform’s data offerings and how they can benefit your company contact Bizinform on 0860 555 457 or email   info@bizinform.co.za. You can also visit the website www.bizinform.co.za

Debt counselling training in need of serious restructuring according to research

After conducting an intensive study on the debt counselling landscape of South Africa, Compuscan Academy has released results indicating the competency requirements and skills needs of South African debt counsellors. The study further highlights those areas where intensive and urgent training is needed and offers recommendations regarding the future training of debt counsellors.

The debt counselling profession is a relatively new occupation introduced by the National Credit Act (NO.34 of 2005) in 2007 to provide assistance to the many over-indebted consumers of South Africa. Ultimately debt counsellors are tasked with assisting consumers by reviewing their indebtedness and making recommendations regarding the restructuring of the consumer’s debt in a way that will help them to rise out of the debt trap which they find themselves in.

Currently there are 2013 debt counsellors registered with the National Credit Regulator, however, of these it is estimated that less than 1 000 are still practicing. Since its inception, the profession has been plagued with challenges and obstacles which have hindered the successful performance of today’s debt counsellors. In particular, a focus has been placed on the current levels of competence of debt counsellors and the requirements regarding education, competence and experience as laid out in legislation and the National Credit Regulations.

As a result Cindee Groenewald (General Manager: Compuscan Academy) launched an intensive study as part of her MBA dissertation to determine the competency requirements and skills needs of debt counsellors. The study itself comprised of two phases – the first to establish the competency requirements of debt counsellors via a task and competency analysis based on interviews with key stakeholders and a review of industry documentation. The second phase involved conducting a skills needs analysis and was aimed at collecting and analysing data on the skills needs of debt counsellors to develop a competency framework comprising various skills related and knowledge competency areas. A competency framework is an outline of key competencies required for a specific occupation or job and more specifically the knowledge, skills, personality and characteristics which underline them.

From the analysis of the results it was concluded that the most important or critical competencies for debt counsellors are attention to detail, professional integrity, knowledge of credit legislation, regulations and laws, debt assessment interviewing, financial and over indebtedness assessment, problem solving and analytical thinking, managing personal finance and knowledge of the debt counselling industry. More than 80% of respondents indicated these competencies as the most important for the performance of debt counselling related tasks.

In addition, the study also examined in which areas debt counsellors feel there is an urgent need for further training or skills development. According to the study the top five competencies which are viewed by debt counsellors to require the most urgent training are: Consumer Protection; Credit Legislations, Regulations and Laws; Debt Counselling Related Declaratory Orders, Rules, Guidelines and Codes of Conduct; Legal Representations and Consumer Education and Counselling.

Another concern which arose from the study surrounds the duration of the current debt counselling training programme. Respondents indicated that the course is too short and that more time should be devoted to debt counselling courses which should be extended to 6 or 12 months. It was also suggested by respondents that the format of debt counselling courses be changed to a certificate or diploma.

Another concern raised focuses on the lack of practical training included in the current debt counselling programme. Respondents claim that the course is too theory based and should include more practical learning activities and case studies or perhaps be combined with a mentorship or internship programme. It is therefore suggested that the course includes a three to six month internship with an NCR approved debt counsellor or that training be supplemented with on-the-job coaching and mentoring or alternatively with simulated role play learning that provides prospective debt counsellors with an opportunity to practice the skills in a controlled environment. Likewise, more workshops and continuous professional development interventions are required to address debt counsellors’ skills and training needs.

It is hoped that the findings of this study can be used for the design and development of an occupational curriculum to contribute to the debt counselling profession and the industry at large. Ultimately, with the insight on what current debt counsellors and industry experts regard as critical competencies for the performance of debt counselling tasks, a benchmark can be established for targeted skills training for debt counsellors as well as for the development of an occupational profile and qualification curriculum for these professionals.

The research above was conducted by Compuscan Academy. For more information please contact us on 021 888 6000 or email   info@compuscan.co.za. You can also visit the website www.compuscan.co.za.