The issue of "tax bracket creep" in South Africa : potential solutions

Abstract

The majority of South Africans felt relieved when Finance Minister, Enoch Godongwana, did not announce any noticeable tax hikes during his annual National Budget Speech on 21 February 2024. Nevertheless, the same South Africans were probably in a worse financial situation after the fact, due to a lesser-known tax principle called “tax bracket creep”. This hidden tax increase in the 2024 Budget Speech was the absence of any changes to the progressive tax rate table for individuals to account for inflation. Furthermore, the Minister did not increase the tax rebates for individual taxpayers from the rates set in the previous year – South African taxpayers were thus doubly pressed. If a person received a salary increase tied to inflation, they may have ended up worse off, because their higher taxable income may have pushed them into a higher tax bracket and resulted in them being taxed at a higher rate due to tax bracket creep. Simultaneously, the taxpayer’s tax rebate was also not adjusted upward to account for inflation. The phenomenon of tax bracket creep is recognised globally but remains unregulated in numerous countries. I believe it presents a simple way for governments to collect more taxes subtly. It is solely the government’s decision whether or not to adjust the South African progressive tax rate table for inflation, as there is no automatic link between the tax rate table and inflation. In my paper, I analyse the principle of tax bracket creep, and also consider the global situation regarding the regulations required to address such a tax bracket creep (such as automatic tax indexation of the personal income tax table). I further consider if regulations or relief can be put into place in South Africa to address the detriment of the tax bracket creep to the South African individual taxpayer.